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

Bank A provides correspondent services to Bank B. Bank B allows its own customers direct access to the account at Bank A to write cheques and make transactions (a payable-through account). Which control is most important for Bank A?

Bank A should be satisfied that Bank B has performed customer due diligence on the customers with direct account access and can provide that information on request. Payable-through accounts are higher risk, so monitoring only aggregate balances or treating the account as low risk is inadequate.

  1. AConfirm that Bank B has performed CDD on customers with direct access and can provide the CDD data on requestCorrect
  2. BLimit monitoring to Bank B's aggregate balances
  3. CTreat the account as low risk because Bank B is the account holder
  4. DProhibit Bank B from keeping records of those customers

Explanation

Payable-through accounts let the respondent's customers transact directly, so Bank A must be satisfied that Bank B has verified those customers' identity, performs ongoing CDD and can supply the information on request. Aggregate-only monitoring or low-risk treatment ignores the nested exposure.

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