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Risk Approach in Customer Due Diligence

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Questions and Answers

What is another name for the Principle Based Approach in Customer Due Diligence investigations?

Customer-Centric Approach
Regulation Focused Approach
Risk Based Approach
Rule Based Approach (correct)

Which approach focuses more on compliance with regulations and laws rather than understanding the customer and associated risks?

Risk Based Approach
Principle Based Approach (correct)
Regulation-Centric Approach
Customer-Understanding Approach

How does the rule-based approach in Know Your Customer (KYC) primarily verify customer information?

Using automated rules and software (correct)
Conducting in-depth customer interviews
Analyzing customer behavior over time
Referring to past financial statements

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 (C) Signup and view all the answers

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 (A) Signup and view all the answers

What distinguishes the risk-based approach from the rule-based approach in Customer Due Diligence investigations?

Focus on customer understanding and risk assessment (D) Signup and view all the answers

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 (C) Signup and view all the answers

How often are customers with a neutral risk classification reviewed?

Every 5 years (C) Signup and view all the answers

What is the usual outcome when a customer is classified as 'unacceptable risk'?

The institution initiates offboarding the customer (A) Signup and view all the answers

What is the difference between the risk-based approach and the rule-based approach?

The rule-based approach allows the use of professional judgement (C) Signup and view all the answers

What is the purpose of an 'Event Driven Review'?

To assess the risk level of a customer when there are changes in their situation (C) Signup and view all the answers

What is the main challenge in completely severing a relationship with a customer?

The potential adverse effects on ongoing investigations by law enforcement agencies (B) Signup and view all the answers

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 (B) Signup and view all the answers

What is the main goal of Customer Due Diligence (CDD) investigations?

To ensure that customers meet legal obligations to implement effective risk management (C) Signup and view all the answers

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 (B) Signup and view all the answers

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 (D) Signup and view all the answers

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