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CS Professional · IFSCA - Regulations, Listing and Compliances · Book-keeping, Accounting, Taxation and Financial Crime Compliance Services and TAS

Kiran Advisory, an IFSC entity, rates a new client as high risk because the client is a politically exposed person (PEP) from a high-risk jurisdiction. Which approach is consistent with a risk-based AML framework?

Kiran should apply enhanced due diligence to the PEP: obtain senior management approval, verify source of funds and wealth, and monitor the relationship more closely. Standard or simplified checks under-mitigate the risk, and a blanket ban on PEPs is not what a risk-based approach requires.

  1. AApply standard due diligence like any other client to avoid discrimination
  2. BApply enhanced due diligence, including senior management approval, source of funds verification and closer ongoing monitoringCorrect
  3. CRefuse all PEPs as a blanket rule irrespective of risk
  4. DApply simplified due diligence since PEPs are usually well known

Explanation

A risk-based approach requires enhanced due diligence for high-risk clients such as PEPs: senior management approval, establishing source of funds and wealth, and enhanced monitoring. Standard or simplified measures under-mitigate the risk. A blanket refusal is not what the risk-based framework prescribes.

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