Which risk factors are associated with acquiring and servicing the banking activities of customers considered higher risk for financial crime activities? (Select Three.)

Reputational risk arises when an institution is publicly associated with higher-risk clients who may be linked to financial crime, corruption, or sanctions violations, potentially damaging stakeholder trust and business relationships. Negative media coverage or regulatory enforcement actions related to such customers can cause lasting harm to the institution's market standing and ability to attract and retain clients.

Operational risk refers to losses arising from failures in internal processes, people, or systems and is a general enterprise risk category not specifically defined as a financial crime risk tied to higher-risk customer relationships.

Sanctions risk is specifically elevated when servicing higher-risk customers because they may be sanctioned individuals, entities, or residents of restricted jurisdictions subject to programs administered by bodies such as OFAC or the UN Security Council. Failure to identify and manage this exposure can result in severe civil and criminal penalties for the institution.

Compliance risk increases when serving higher-risk customers because enhanced due diligence, more intensive transaction monitoring, and additional reporting obligations are required under AML regulations. Any failure to implement and document these heightened controls appropriately exposes the institution to regulatory enforcement actions, fines, and restrictions on business activities.

Lending risk relates to the probability that a borrower will default on a credit obligation and is a credit risk concept, not a financial crime risk category associated with higher-risk customer acquisition.