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

A bank's group head office is designing ML/FT policy for a group with a subsidiary in Country X, where local law restricts sharing of customer information with the parent, and local AML requirements are less strict than the home country's. Which approach is most consistent with the Basel Committee guidelines?

The group should apply its policy consistently, using the higher of home and host standards where permitted, and if local law prevents this or blocks information sharing, apply additional risk-mitigating measures and notify the home supervisor. Defaulting to weaker local rules or exempting the subsidiary is inconsistent with the guidelines.

1. AApply the less strict local standard, since host country law prevails in all cases
2. BApply the group policy consistently, applying the higher standard where host requirements are lower, and inform the home supervisor if local law prevents implementation, with additional measures to manage the riskCorrect
3. CClose the subsidiary's accounts immediately without notifying any supervisor
4. DExempt the subsidiary from group-wide risk assessment because of local secrecy rules