FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism

A bank has 40 correspondent clients across a group. The group's ML/FT risk assessment finds that Subsidiary X, in a jurisdiction with weak AML supervision, has screened out 0 alerts as true matches over a year while peers in the group escalated about 3% of alerts. The home supervisor is conducting consolidated supervision. Which action best illustrates an appropriate supervisory and group response?

The group should test the subsidiary's alert handling, share findings with home and host supervisors, and require remediation while reassessing its risk rating. A zero escalation rate against about 3% in peers signals possible ineffective monitoring, so loosening thresholds or waiting would be inappropriate.

1. ATreat the result as a local matter, because only host supervisors can review the subsidiary
2. BHave the group function test Subsidiary X's alert-handling, share findings with home and host supervisors, and require remediation while reviewing the subsidiary's risk ratingCorrect
3. CIncrease the subsidiary's alert threshold to reduce workload so that alerts match the group average
4. DWait for the host supervisor to issue an enforcement action before changing group controls