FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank's group-wide ML/FT policy applies to a foreign branch whose host country has less strict AML requirements than the home country. According to the Basel Committee guidelines, what should the branch do?
The branch should apply the group's stricter standard as far as host law allows, and if local law prevents it, inform the home supervisor and take additional risk mitigation. Defaulting to weaker local rules or automatically suspending onboarding is not what the guidelines prescribe.
- AFollow only host-country rules, since local law always prevails
- BApply the group's higher standard to the extent host laws permit, and inform the home supervisor if host law prevents implementation of the group standardCorrect
- CApply the lower standard to remain competitive, and disclose the difference in the annual report
- DSuspend the branch's customer onboarding until the host country changes its rules
Explanation
Guidelines call for consistent group-wide policies, with the stricter standard applied where local law allows. If host law prohibits implementing it, the bank should inform the home supervisor and take additional measures to manage the risk. Following only the weaker rules or suspending onboarding is not prescribed.
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