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 risk posed by a firm's clients?
What is a key consideration for a firm when choosing delivery systems for its services?
What is a key aspect of Know Your Customer (KYC) procedures?
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Why is it important for a firm to validate a person's identity?
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What is a key risk associated with certain financial products?
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What is a key aspect of enhanced ongoing monitoring of a business relationship?
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Why is it important for a firm to have robust systems for validating a person's identity?
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What is a key consideration for firms when screening customers after a business relationship has been established?
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What should firms do when the standard evidence of identity is insufficient in relation to the money laundering or terrorist financing risk?
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What is the purpose of having a variety of settings for fuzziness in the matching process?
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What is a consequence of generating and resolving an undue number of false positives?
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When should firms screen customers?
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What is a key aspect of a firm's risk-based approach?
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What is the purpose of enhanced due diligence measures?
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Why must firms be aware of the absolute restrictions embedded in the financial sanctions regime?
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What is the primary goal of implementing a risk-based approach to money laundering and terrorist financing?
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What is a key component of Know Your Customer (KYC) procedures in preventing money laundering and terrorist financing?
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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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Description
This quiz assesses knowledge of firms' requirements for managing risks associated with Politically Exposed Persons (PEPs). It covers procedures for determining PEP status, senior management approval, and ongoing monitoring.