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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 is onboarding a respondent bank as a correspondent banking client. Which action is most consistent with sound practice for this relationship?

The bank should collect information on the respondent's business, reputation, quality of supervision and AML/CFT controls, and obtain senior management approval before establishing the relationship. Regulated status or a license alone is not enough, and due diligence cannot be deferred until after the account is opened.

  1. AGather information on the respondent's business, reputation, supervision quality and AML/CFT controls, with senior management approval before establishing the relationshipCorrect
  2. BRely solely on the respondent's home-country license as evidence of adequate controls
  3. COpen the account first and complete due diligence within the first year
  4. DApply simplified due diligence because the respondent is itself a regulated bank

Explanation

Correspondent banking carries higher risk, so the bank must understand the respondent's business, reputation, supervision and AML/CFT controls, and obtain senior management approval before opening. Licensing alone is insufficient, delayed due diligence is not acceptable, and regulated status does not justify simplified measures.

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