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

A bank rates customers by weighting three risk factors: customer type 40%, geography 35%, product 25%, each scored 1 (low) to 5 (high). Customers scoring 3.5 or above are high risk and subject to enhanced due diligence. A new client scores 4 on customer type, 3 on geography and 4 on product. The compliance head proposes overriding the result to medium because the client is introduced by a senior director. What is the best conclusion?

The weighted score is 3.65 (1.6 plus 1.05 plus 1.0), which exceeds the 3.5 threshold, so the client is high risk and needs enhanced due diligence. A senior director's introduction is not an objective risk-reducing factor, so the override is not justified.

1. AThe score is 3.65, high risk; the override is not justified by the introduction alone and EDD appliesCorrect
2. BThe score is 3.65, high risk; the override is acceptable because senior introduction lowers risk
3. CThe score is 3.50, borderline; senior approval resolves it as medium
4. DThe score is 3.25, medium risk; no EDD is needed