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

The chief AML officer of a bank reports only to the head of a major revenue-generating business line, and the compliance budget is set by that business head. Which governance concern does this arrangement most directly raise?

This arrangement undermines the independence and authority of the compliance function, creating a conflict of interest, since the officer's reporting line and budget are controlled by a revenue-generating business. Guidelines expect the AML officer to have seniority, adequate resources and direct access to the board.

  1. AIt weakens the independence and authority of the compliance function, creating a conflict of interestCorrect
  2. BIt violates the principle that the board must not receive AML reports
  3. CIt means the third line of defence is duplicating the second line
  4. DIt eliminates the need for an ML/FT risk assessment

Explanation

Sound governance requires the AML officer to have sufficient seniority, independence and direct access to the board or its committee. Reporting to and being funded by a revenue-focused business head creates a conflict of interest and may suppress escalation of concerns.

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