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 program covers a foreign branch located in a country whose AML requirements are weaker than those in the bank's home country. According to the Basel Committee guidelines, what should the bank do?
The bank should apply its home-country, group-wide AML standard to the branch as far as host-country law permits, and notify the home supervisor if local law blocks implementation, adding mitigating measures. It should not default to the weaker local standard or exempt the branch.
- AApply the weaker host-country standard to avoid conflicts with local law
- BApply the home-country standard to the extent host-country laws permit, and inform the home supervisor if local law prevents implementationCorrect
- CExempt the branch from the group program because it is separately licensed
- DClose the branch's customer accounts immediately regardless of local law
Explanation
The guidelines call for group-wide application of consistent policies, applying the higher standard where host laws allow. Where local law prohibits implementation, the bank should inform its home supervisor and take additional mitigating measures. Exempting the branch or using the weaker standard undermines group-wide risk management.
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