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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's guidelines on sound management of ML/FT risks, which statement best describes the role of the board of directors?

The board approves and oversees the ML/FT risk strategy and policies, ensuring they reflect the bank's risk appetite. Daily screening and suspicious report filing are operational tasks, and accountability cannot be transferred to external auditors. The board sets the tone and holds ultimate responsibility for ML/FT risk governance.

  1. AThe board approves and oversees ML/FT risk strategy and policies, and ensures the bank's risk appetite is reflected in themCorrect
  2. BThe board performs day-to-day customer screening so that alerts are escalated quickly
  3. CThe board delegates all ML/FT accountability to the external auditor to preserve independence
  4. DThe board is responsible only for filing suspicious transaction reports with the financial intelligence unit

Explanation

The guidelines place ultimate responsibility for ML/FT risk oversight with the board, which approves strategy and policies and sets the tone. Day-to-day screening belongs to operational staff, and STR filing is carried out by the compliance function, so those options misallocate duties. Accountability cannot be handed to the external auditor.

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