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

A multinational bank headquartered in Country A has a subsidiary in Country B whose law restricts sharing customer information with foreign entities. Under the Basel Committee guidelines on sound management of ML/FT risks, what should the group do?

The group should apply the stricter of home and host standards to the extent host law allows, and make sure group-level functions can still get the information needed for ML/FT risk management. It should not exclude the subsidiary or breach local law.

  1. AApply the stricter of home and host standards where permitted by host law, and ensure group-level ML/FT risk management can still obtain the information neededCorrect
  2. BApply only the host country's rules and exclude the subsidiary from group-wide risk assessment
  3. CTransfer all customer files to head office regardless of host country law
  4. DIgnore the group policy for the subsidiary because local law prevails in all respects

Explanation

The guidelines expect group-wide policies applying the higher standard to the extent host law permits. Where host law blocks necessary information sharing, the bank must still seek ways to manage the risk and inform the home supervisor of the limitation. Excluding the subsidiary or breaking local law are both inappropriate.

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