FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank's board receives quarterly AML reports showing only the number of suspicious transaction reports filed. The chief AML officer reports to the head of the retail business and has no direct access to the board. Which is the most significant governance weakness under the Basel guidance?
The key weakness is that the chief AML officer reports to a business head and cannot reach the board directly. The guidance requires the AML function to be independent, senior and have direct board access so that it can challenge the first line and escalate concerns.
- AThe chief AML officer lacks independence and direct access to the boardCorrect
- BThe bank files too many suspicious transaction reports
- CThe board receives reports quarterly rather than monthly
- DInternal audit is not involved in the day-to-day screening of transactions
Explanation
The guidance expects the chief AML officer to have sufficient seniority, independence and direct access to the board or its committees. Reporting to a business head compromises the second line's independence. Quarterly frequency is not prescribed as a defect, and internal audit should not perform day-to-day screening because that would breach its independence as the third line.
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