FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank's internal audit function reviews the AML programme and finds that the transaction monitoring thresholds were calibrated three years ago and never tested. Which action best reflects the internal audit function's proper role under the three lines of defence?
Internal audit should independently assess the AML programme, report the untested threshold weakness to the board or audit committee, and follow up on remediation. It should not set thresholds or run alert investigations itself, because doing so would compromise its independence as the third line of defence.
- ARecalibrate the thresholds itself so that the weakness is fixed immediately
- BEvaluate the programme independently, report the finding to the board or its audit committee, and follow up on management's remediationCorrect
- CApprove new thresholds proposed by business units before they take effect
- DTake over day-to-day alert investigation until the weakness is remediated
Explanation
Internal audit is the third line and gives independent assurance, reporting to the board or audit committee and tracking remediation. Recalibrating, approving or investigating alerts would make it part of operations or management and compromise its independence.
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