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

A bank headquartered in Country A operates a subsidiary in Country B whose local law restricts sharing customer information with foreign entities. Under the BCBS guidelines on sound management of ML/FT risks, what should the group do?

The group should apply the stricter standard where local law allows and, if host-country law blocks proper implementation of group AML/CFT policy, notify the home supervisor and take additional mitigating measures. Ignoring host law or simply deferring to it both fail the guidelines.

  1. AApply the stricter of the home and host standards where permitted, and inform the home supervisor if host law prevents proper implementation of group policiesCorrect
  2. BApply only host-country standards because local law always overrides group policy
  3. CClose the subsidiary's customer accounts immediately without notifying any supervisor
  4. DApply the home standards in full and ignore the host-country restriction

Explanation

The guidelines expect group-wide policies to apply across branches and subsidiaries, with the higher standard prevailing where host law allows. If host law prohibits implementation, the bank must tell the home supervisor and take additional measures to manage the ML/FT risk. Ignoring host law or simply deferring to it is wrong.

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