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FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism

A mid-sized bank is updating its framework under the Basel Committee guidelines on sound management of money laundering and terrorist financing (ML/FT) risks. Which statement best describes how the guidelines position ML/FT risk management within the bank's overall risk framework?

ML/FT risk should be embedded in the bank's enterprise-wide risk management framework, with risks identified, assessed, and managed across all business lines like other significant risks. It is not a stand-alone legal task, limited to retail, or something left to supervisors.

  1. AIt should be integrated into the bank's enterprise-wide risk management, with ML/FT risks identified, assessed and managed like other significant risksCorrect
  2. BIt is solely a legal matter to be handled by outside counsel, separate from the bank's risk governance
  3. CIt applies only to the retail branch network, because wholesale and private banking activities pose negligible ML/FT exposure
  4. DIt is a matter for the regulator, so the bank only needs to respond to supervisory findings

Explanation

The guidelines state that ML/FT risk management must be part of the bank's overall risk management and governance, applied across all business lines and entities. Treating it as only a legal or retail matter, or waiting for the supervisor, is inconsistent with this.

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