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

A bank's compliance officer is reviewing a proposal to open a correspondent banking relationship with a respondent bank in a jurisdiction with weak AML supervision. Under the Basel Committee's sound management guidance, which step is most appropriate before establishing the relationship?

The bank should obtain senior management approval and collect information on the respondent's ownership, business, AML controls and supervisory quality before opening the relationship. Correspondent banking is higher risk, so enhanced due diligence must precede onboarding, not follow a suspicious event or rely on others.

  1. ARely solely on the respondent bank's published ratings from a commercial agency
  2. BObtain senior management approval and gather information on the respondent's ownership, business, AML controls and supervision qualityCorrect
  3. COpen the account and apply enhanced monitoring only after the first suspicious transaction appears
  4. DDelegate the decision entirely to the respondent bank's own compliance function

Explanation

Correspondent relationships call for enhanced due diligence: understanding the respondent's business, ownership, reputation, AML controls and the quality of its supervision, plus senior management approval. Monitoring only after a suspicious event is reactive and inadequate, and ratings or delegation do not discharge the bank's own responsibility.

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