FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank discovers that a respondent bank is a shell bank with no physical presence and no affiliation with a regulated financial group. What does the guidance expect?
The bank should not establish or continue a correspondent relationship with a shell bank, and should also ensure its respondents do not allow shell banks to use their accounts. Enhanced monitoring, collateral or beneficial ownership disclosure does not make such a relationship acceptable.
- AThe bank should not enter or continue correspondent relationships with shell banks and should ensure respondents do not permit shell banks to use their accountsCorrect
- BThe bank may proceed if enhanced monitoring is applied and senior management approves
- CThe bank may proceed if the shell bank deposits collateral covering expected exposure
- DThe bank may proceed if the shell bank's beneficial owners are identified
Explanation
The guidance states banks should refuse to enter into or continue correspondent relationships with shell banks and should guard against respondents that allow shell banks to use their accounts. Enhanced monitoring, collateral, or ownership disclosure does not cure the prohibition.
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