Podcast
Questions and Answers
What is a key aspect of a firm's risk-based approach to dealing with Politically Exposed Persons (PEPs)?
What is a key aspect of a firm's risk-based approach to dealing with Politically Exposed Persons (PEPs)?
- Automatically closing accounts with PEPs
- Applying the same level of due diligence to all customers
- Obtaining approval from the financial regulator
- Obtaining senior management approval for establishing a business relationship (correct)
What is a key risk posed by a firm's clients?
What is a key risk posed by a firm's clients?
- Credit risk
- Market risk
- Liquidity risk
- The risk of being deceived for criminal outcomes (correct)
What is a key consideration for a firm when choosing delivery systems for its services?
What is a key consideration for a firm when choosing delivery systems for its services?
- Cost
- Ensuring instructions are from the actual customer (correct)
- Speed
- Convenience
What is a key aspect of Know Your Customer (KYC) procedures?
What is a key aspect of Know Your Customer (KYC) procedures?
Why is it important for a firm to validate a person's identity?
Why is it important for a firm to validate a person's identity?
What is a key risk associated with certain financial products?
What is a key risk associated with certain financial products?
What is a key aspect of enhanced ongoing monitoring of a business relationship?
What is a key aspect of enhanced ongoing monitoring of a business relationship?
Why is it important for a firm to have robust systems for validating a person's identity?
Why is it important for a firm to have robust systems for validating a person's identity?
What is a key consideration for firms when screening customers after a business relationship has been established?
What is a key consideration for firms when screening customers after a business relationship has been established?
What should firms do when the standard evidence of identity is insufficient in relation to the money laundering or terrorist financing risk?
What should firms do when the standard evidence of identity is insufficient in relation to the money laundering or terrorist financing risk?
What is the purpose of having a variety of settings for fuzziness in the matching process?
What is the purpose of having a variety of settings for fuzziness in the matching process?
What is a consequence of generating and resolving an undue number of false positives?
What is a consequence of generating and resolving an undue number of false positives?
When should firms screen customers?
When should firms screen customers?
What is a key aspect of a firm's risk-based approach?
What is a key aspect of a firm's risk-based approach?
What is the purpose of enhanced due diligence measures?
What is the purpose of enhanced due diligence measures?
Why must firms be aware of the absolute restrictions embedded in the financial sanctions regime?
Why must firms be aware of the absolute restrictions embedded in the financial sanctions regime?
What is the primary goal of implementing a risk-based approach to money laundering and terrorist financing?
What is the primary goal of implementing a risk-based approach to money laundering and terrorist financing?
What is a key component of Know Your Customer (KYC) procedures in preventing money laundering and terrorist financing?
What is a key component of Know Your Customer (KYC) procedures in preventing money laundering and terrorist financing?
State two of the objectives of regulation.
State two of the objectives of regulation.
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Study Notes
Firms and PEPs
- Firms must take a risk-based approach to dealing with Politically Exposed Persons (PEPs)
- This approach involves:
- Having procedures to determine if a customer is a PEP
- Obtaining senior management approval for establishing a business relationship with a PEP
- Establishing the source of wealth and funds involved in the business relationship
- Conducting enhanced ongoing monitoring of the business relationship
Risks to a Firm
- Firms are exposed to financial crime risks due to their clients, products, and delivery systems
- Risks arise from:
- Dishonest clients seeking to deceive the firm
- Products that offer tax benefits (e.g., ISAs, pensions) and the risk of tax evasion
- Delivery systems that can be vulnerable to impersonation or other criminal activity
Managing and Mitigating Risks
- Firms must implement measures to:
- Verify customer identity
- Collect additional customer information
- Monitor transactions and activity to detect potential money laundering or terrorist financing
- Firms must determine the extent of their Customer Due Diligence (CDD) measures based on the type of customer, business relationship, product, or transaction
- Examples of control procedures include:
- Customer identification programs tailored to the customer's risk level
- Requiring high-quality evidence (documentary, electronic, or third-party assurance)
- Obtaining additional customer information based on their risk level
- Monitoring customer transactions and activities
Risk Management
- Risk management is a continuous process that must be regularly reviewed and updated
- Firms must keep their risk assessments up to date to ensure effective risk management
- Software solutions can help identify potential matches and reduce false positives
- Firms should consider the level of human intervention needed to assess false positives
Customer Screening
- All customers should be screened during the establishment of a business relationship or as soon as possible after
- Firms must be aware of the risks associated with screening customers after a business relationship has been established
- Firms must be aware of the absolute restrictions embedded in the financial sanctions regime
- Delays in screening can result in breaching the legislation
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