FRM Part II · FRM Exam Part II · Sound Management of Risks Related to Money Laundering and Financing of Terrorism
During an internal review, a bank finds that its designated chief AML/CFT officer reports only to the head of retail banking, who has set the officer's bonus based on retail revenue growth. Which concern is most consistent with the Basel guidance?
The concern is that the officer's independence and authority are compromised. The role needs sufficient seniority, direct access to the board or its committee, and freedom from conflicts such as pay linked to business revenue. Moving the role under audit or making it approve customers would blur lines of defence.
- AThe officer's independence and authority are compromised, since the role should have sufficient seniority and direct access to the board or its committee, free from conflicts with business targetsCorrect
- BThe officer should instead report to internal audit to align with the third line of defence
- CThe arrangement is acceptable because the first line owns ML/FT risk
- DThe officer should be responsible for approving all high-risk customers personally to ensure accountability
Explanation
The guidance expects a senior, independent AML/CFT compliance officer with access to the board and no conflicts of interest, so remuneration tied to business revenue undermines independence. Reporting to internal audit would blur the second and third lines. First-line ownership does not justify weakening second-line oversight. Personally approving customers makes the officer part of the first line, impairing independence.
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