16 Questions
What is another name for the Principle Based Approach in Customer Due Diligence investigations?
Rule Based Approach
Which approach focuses more on compliance with regulations and laws rather than understanding the customer and associated risks?
Principle Based Approach
How does the rule-based approach in Know Your Customer (KYC) primarily verify customer information?
Using automated rules and software
What limitation is highlighted when using the rule-based approach in customer checks according to the text?
Limited view of the customer and associated risks
Which approach requires a financial institution to focus on the risks associated with the customer relationship and the nature of the customer's business activities?
Risk Based Approach
What distinguishes the risk-based approach from the rule-based approach in Customer Due Diligence investigations?
Focus on customer understanding and risk assessment
What is the primary purpose of a risk-based approach in customer due diligence?
To focus resources on customers who pose the greatest risk and limit compliance costs
How often are customers with a neutral risk classification reviewed?
Every 5 years
What is the usual outcome when a customer is classified as 'unacceptable risk'?
The institution initiates offboarding the customer
What is the difference between the risk-based approach and the rule-based approach?
The rule-based approach allows the use of professional judgement
What is the purpose of an 'Event Driven Review'?
To assess the risk level of a customer when there are changes in their situation
What is the main challenge in completely severing a relationship with a customer?
The potential adverse effects on ongoing investigations by law enforcement agencies
What happens when a customer with a genuinely neutral risk is mistakenly classified as medium?
The customer is subjected to unnecessary additional checks, consuming time and resources
What is the main goal of Customer Due Diligence (CDD) investigations?
To ensure that customers meet legal obligations to implement effective risk management
What is the main difference in the frequency of reviews between customers with a neutral risk and those with an increased risk?
Customers with a neutral risk are reviewed less frequently than those with an increased risk
What is the primary reason for a customer to be classified as 'unacceptable risk'?
The customer is unable or unwilling to provide the required information
Explore the two types of approaches used in Customer Due Diligence investigations: Principle Based Approach and Risk Based Approach. Learn how these approaches are determined by the risk tolerance of the institution or company, also known as Risk Appetite.
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