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

Under the Basel Committee guidance on sound management of ML/FT risks, a bank's business units (for example, relationship managers and branch staff) are responsible for identifying and managing the ML/FT risks arising from their day-to-day activities. In the three lines of defence model, which line do these business units form?

Business units form the first line of defence. They take on customers and products, so they must identify, assess and control the ML/FT risks of their own activities. Compliance and the AML officer are the second line, and internal audit is the third.

  1. AFirst line of defenceCorrect
  2. BSecond line of defence
  3. CThird line of defence
  4. DAn external fourth line of defence

Explanation

The guidance states that business units are the first line of defence and are responsible for identifying, assessing and controlling the ML/FT risks of their business. Compliance and the chief AML officer form the second line, and internal audit forms the third. Business units are not an independent oversight function.

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