FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank is performing an enterprise-wide ML/FT risk assessment. It has identified its customer types, products, delivery channels and countries of operation. According to the Basel Committee guidelines, what should the bank do next with this information?
The bank should use its risk assessment to apply a risk-based approach: stronger controls and enhanced due diligence where risk is higher, and simplified measures only where lower risk is demonstrated. Uniform treatment, reliance on another bank's ratings, or blanket exits do not match the guidelines.
- AApply identical due diligence to all customers, so as to avoid subjective judgment
- BUse the assessment to set a risk-based approach, applying enhanced measures to higher-risk areas and allowing simplified measures where risk is demonstrably lowerCorrect
- CRely entirely on the risk ratings supplied by the customer's previous bank
- DExit all relationships in jurisdictions with any ML/FT exposure
Explanation
The guidelines require banks to identify and assess inherent ML/FT risks and then calibrate controls proportionately: enhanced measures for higher risk, simplified where lower risk is shown. Uniform treatment ignores risk differences, outsourcing ratings abdicates responsibility, and blanket exit is not required.
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