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FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud

A bank's sanctions screening tool matches a payment beneficiary name against a sanctions list with a 78% fuzzy-match score. The bank's threshold for alert generation is 85%. The beneficiary is in a high-risk jurisdiction and the payment is for a trade transaction involving dual-use goods. Which action best reflects sound sanctions risk management?

The bank should escalate the payment for manual review despite the sub-threshold score because the jurisdiction and dual-use goods add risk, and it should assess whether threshold calibration needs risk-based tuning. Ignoring the red flags is unsafe, while automatic rejection or a blanket 50% threshold is disproportionate.

  1. ARelease the payment because the score is below threshold, with no further review
  2. BReject the payment automatically because the name partially matches
  3. CRelease the payment and lower the threshold for all future screening to 50%
  4. DEscalate for review despite the sub-threshold score, and have the threshold calibration and risk-based tuning assessedCorrect

Explanation

Contextual risk factors (high-risk jurisdiction, dual-use goods) justify manual review even below the threshold, and this suggests tuning should be risk-based and tested. Automatic release ignores red flags; automatic rejection is disproportionate; a blanket 50% threshold would flood the system with false positives.

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