24 Questions
What is the primary goal of a risk-based approach in AML systems?
To focus greater effort on higher-risk areas
Which of the following is NOT a key risk factor to consider when formulating a risk-based approach?
Employee compliance record
What is the purpose of risk monitoring in a risk-based approach?
To ensure controls remain effective
What is a risk-based approach NOT?
An opportunity to leave uncompleted identification, verification, and monitoring
What should be designed and implemented after assessing risk factors?
Controls to mitigate risks
How often should risk monitoring be performed?
On a continuous basis
What is the purpose of a risk assessment in a risk-based approach?
To assess the risk profile of an organisation
What is the main objective of a risk-based approach in terms of risk mitigation?
To mitigate risks as far as possible
What is a key component of a risk-based approach to money laundering and terrorist financing?
Implementing a meet-the-client policy
What is a crucial step in managing Politically Exposed Persons (PEPs)?
Obtaining board approval for acceptance
What is the purpose of an AML audit?
To assess the effectiveness of AML procedures
What is a key aspect of suspicious transaction reporting?
Maintaining a written internal reporting system
What is an essential step in client onboarding?
Obtaining full supporting documentation
What is a vital component of AML compliance?
Implementing a comprehensive education strategy
What is a key aspect of managing suspect client relationships?
Having procedures for the management of files
What is an important aspect of employee management in AML?
Ensuring staff take minimum annual leave
What is a key factor in determining the level of risk associated with a client?
Value of assets or property to be handled by the business
What is the purpose of creating a CDD profile?
To take into account each of the factors outlined in the risk-based approach
What type of client may require enhanced due diligence procedures?
Politically Exposed Person (PEP)
What is the purpose of conducting regular client reviews?
To ensure consistency of activity with information contained in the CDD profile
What is the term for the process of reporting unusual transactions automatically?
Automatic transaction-based reporting
What is the purpose of verifying intermediaries or introducers of business?
To ensure they are regulated and based in an equivalent jurisdiction
What is the term for the process of assessing the level of risk associated with a client and applying appropriate measures to mitigate that risk?
Risk-based approach
What is the purpose of independent authorisation prior to the acceptance of new clients?
To ensure the client meets the required standards and criteria
Study Notes
Client Due Diligence (CDD)
- Factors to consider when conducting CDD:
- Whether a country has been known to fund or support terrorism or produce or transit drugs
- Nature of business interests
- Any sensitive activities as defined by regulatory authorities
- Value of assets or property to be handled by the business
- Type of client (e.g., PLC or high-net-worth individual)
- Nature of the client (e.g., PEP)
- Type of property or nature of assets that the business is being asked to handle
- Source of introduction (if applicable)
- If an intermediary or introducer is involved, their regulation, jurisdiction, and trustworthiness
Risk-Based Approach
- Key risk factors to consider:
- Product types offered by the organisation
- Distribution channels used
- Jurisdictions where the organisation operates and where clients are from
- Customer types
- Volumes and sizes of transactions
- Organisation's risk appetite
- Risk assessment is a continuous process
- Risk mitigation involves designing and implementing controls to mitigate risks
- Risk monitoring involves regularly reviewing and improving controls
Risk Mitigation and Monitoring
- Controls to mitigate risks include:
- Independent authorisation for new clients
- Documented client acceptance procedures
- Verification of intermediaries or introducers
- Creation of CDD profiles
- Regular client reviews (30-, 60-, or 90-day)
- Risk-based monitoring of relationship activity
- Enhanced due diligence for high-risk clients
- Automatic transaction-based reporting for unusual transactions
- Other controls include:
- Annual client reviews
- Meet-the-client policy
- Written internal reporting system for suspicious transactions or relationships
- Dual authorisations policy
- Requirement for full supporting documentation on all payment requests
- Checklists for receipts and payments of funds
- Annual MLRO reports to the board
- Maintenance of a register of Powers of Attorney or delegated authority
- Procedures for managing suspect client relationships and communications
This quiz assesses the risk of a client based on various factors, including their country of origin, business interests, and assets. It also considers the client's type and nature, such as a high-net-worth individual or a PEP.
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