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

A banking group headquartered in Country A has a subsidiary in Country B. Country B's customer due diligence and record-keeping rules are less strict than Country A's, but Country B's law does not prohibit applying stricter standards. Under the BCBS guidelines on sound management of ML/FT risks, which approach should the group follow for the subsidiary?

The group should apply its home-country, group-wide standards to the subsidiary wherever host-country law permits. Consistent group-wide application prevents the subsidiary from becoming a weak point for money laundering, so using only the laxer local rules would be wrong.

  1. AApply the home-country (group) standards to the subsidiary, to the extent host-country laws permitCorrect
  2. BApply only Country B's local standards, since the subsidiary is licensed there
  3. CApply whichever standard is less costly to implement, provided the supervisor is told
  4. DApply home-country standards only to customers who are also customers of the parent

Explanation

The guidelines expect group-wide policies to be applied consistently across branches and subsidiaries. Where host rules are less strict and do not prohibit it, the group's higher standard applies. Using only local standards would create a weak link in the group's ML/FT controls.

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