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

Which element is a core component of customer due diligence (CDD) under the Basel Committee's guidelines on ML/FT risk?

Core CDD requires identifying and verifying the customer, identifying the beneficial owner, and understanding the purpose and intended nature of the business relationship, followed by ongoing monitoring. Collecting only a name and address, balance-based thresholds, or credit ratings do not meet the guidelines' CDD standard.

  1. AIdentifying the customer and verifying identity, identifying the beneficial owner, and understanding the purpose and nature of the relationshipCorrect
  2. BCollecting only the customer's name and address at account opening
  3. CVerifying identity only for customers whose accounts exceed a fixed annual balance
  4. DObtaining a credit rating for every customer

Explanation

CDD includes identification and verification of the customer, identifying and taking reasonable steps to verify beneficial owners, and understanding the purpose and intended nature of the relationship, plus ongoing monitoring. The other options are incomplete or irrelevant to CDD.

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