FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
A bank's ML/FT risk assessment identifies high inherent risk in its correspondent banking business, but strong controls. Which approach is most consistent with the Basel Committee's risk-based approach?
The bank should apply enhanced, proportionate measures to the high-risk correspondent business and evaluate residual risk after accounting for controls. Uniform treatment ignores risk differences, blanket exits are de-risking rather than management, and relying solely on the respondent's assessment abandons the bank's own responsibility.
- AApply the same due diligence to all customers regardless of risk to ensure consistency
- BExit all correspondent relationships because inherent risk is high
- CApply enhanced measures proportionate to the identified risk, and assess residual risk after considering the control environmentCorrect
- DRely on the respondent bank's own assessment and perform no independent review
Explanation
A risk-based approach requires identifying and assessing risks, then applying controls proportionate to them and evaluating residual risk. Uniform treatment ignores risk differences, blanket exit is de-risking rather than risk management, and full reliance on the respondent abandons the bank's own responsibility.
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