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FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud

A bank's compliance officer is reviewing the onboarding of a new corporate client whose ownership runs through three layers of holding companies in different jurisdictions. Which KYC step is most directly aimed at addressing the risk created by this structure?

The bank should identify and verify the ultimate beneficial owners, the natural persons who own or control the entity. Layered holding structures across jurisdictions hide those individuals, so looking only at the immediate parent or relying on client statements leaves the core opacity risk unaddressed.

  1. AIdentifying and verifying the natural persons who ultimately own or control the entityCorrect
  2. BVerifying the registered office address of the immediate parent company only
  3. CScreening the client's invoices for sanctioned goods once a year
  4. DRelying on the client's own statement of expected turnover

Explanation

Customer due diligence requires identifying the beneficial owners, meaning the natural persons who ultimately own or control a legal entity. Layered structures obscure these persons. Verifying only the immediate parent leaves the true controllers unknown, so it does not address the risk.

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