FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank is preparing its enterprise-wide ML/FT risk assessment. Which approach is most consistent with the Basel Committee guidance?
The bank should identify inherent ML/FT risk across customers, products, geographies and channels, assess the effectiveness of its controls, and derive residual risk. This gives a bank-wide view that reflects its own business, rather than a one-off customer average or a borrowed assessment.
- AIdentify inherent risks across customers, products, services, geographies and delivery channels, evaluate the mitigating controls, and then determine the residual riskCorrect
- BRate each customer's risk once at onboarding and derive the bank-wide risk from the average rating
- CRely on the risk assessment of the group's largest subsidiary and apply it uniformly to all other entities
- DAssess only the controls in place, because inherent risk cannot be measured reliably
Explanation
The guidance expects banks to understand inherent risk across categories such as customers, products, geography and channels, then assess the quality of controls to reach residual risk. A one-off onboarding average ignores products and channels and goes stale. Copying another entity's assessment ignores local risk factors, and skipping inherent risk makes control strength impossible to judge.
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