FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank's host-country branch cannot legally share certain customer-level information with the head office, and the host rules are less strict than the home rules. According to the Basel guidelines, which action is most appropriate if the bank cannot overcome the legal barrier?
The bank should inform its home supervisor about the limitation and implement additional mitigating measures, potentially including restricting or ending business there. Silently continuing or lowering group standards to the weaker host rules would contradict the guidelines.
- AInform the home supervisor of the limitation and take additional measures to mitigate the riskCorrect
- BContinue as normal without telling anyone, since the barrier is a legal matter
- CApply the lower host standard to the whole group to ensure consistency
- DClose the group compliance function and leave the branch to self-manage
Explanation
When legal impediments prevent applying group policy or sharing information, the bank should tell the home supervisor and apply appropriate additional safeguards, which may include limiting or ceasing operations in that jurisdiction. Lowering group standards is wrong, as the higher standard should be applied.
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