10 Questions
What enables money launderers to process checks through an account without being detected?
Multiple imaging devices
What is a potential risk associated with RDC in relation to sanctions requirements?
Processing transactions in a sanctioned country
What is the primary risk associated with RDC according to the text?
Fraud
What is the likely outcome of RDC without proper controls?
Fraud is not prevented but rather detected after it has occurred
What is the recommended approach to controlling the risks associated with RDC?
Integrating RDC processing into other controls
What is the primary goal of integrating RDC processing into other controls?
Improving fraud detection and prevention
What is the potential consequence of RDC minimization of human intervention?
Decreased ability to identify potential fraud indicators
What is the recommended approach to implementing new products, such as RDC?
Integrating new products into existing controls
What is the potential risk associated with RDC in relation to money laundering?
Moving checks with ease through an account
What is the primary goal of implementing an AML/CFT policy and procedure?
Preventing and detecting fraud and money laundering
Study Notes
Reputational Risk
- A bank's reputation can be damaged by a money laundering scandal, leading to a loss of customers and business
- High-quality borrowers may withdraw their loans, increasing the risk of the overall loan portfolio
- Depositors may withdraw their funds, causing potential liquidity problems
Operational Risk
- Inadequate internal processes, personnel, or systems can lead to losses
- External events can also result in losses
- Losses can occur when organizations incur reduced or terminated inter-bank or correspondent banking services
- Increased borrowing or funding costs are also a component of operational risk
Legal Risk
- Lawsuits, adverse judgments, unenforceable contracts, fines, and penalties can generate losses and increased expenses
- Legitimate customers can sue the financial organization for reimbursement in cases of financial crime
- The SM&CR requires a senior manager to be responsible for ensuring efforts to combat financial crime are effectively designed and implemented
AML/CFT Regulations
- The New York State Department of Financial Services (DFS) requires regulated organizations to maintain "transaction monitoring and filtering programs"
- These programs must monitor transactions after their execution for compliance with the Bank Secrecy Act (BSA) and AML laws and regulations
- The programs must also prevent unlawful transactions with targets of economic sanctions administered by OFAC
Transaction Monitoring Systems
- Models should be risk-based and commensurate with the organization's own risk assessment and profile
- Ongoing analysis and testing of AML/CFT models are required to assess scenario logic, performance, model technology, assumptions, and model parameter settings
Remote Deposit Capture (RDC) Risks
- RDC can be misused by money launderers to move checks with ease through an account
- RDC can also be used to facilitate violations of sanctions requirements
- The more prominent risk associated with RDC is fraud, due to the minimization of human intervention in reviewing cleared items
- Integration of RDC processing into other controls, such as monitoring and fraud-prevention systems, is necessary to mitigate these risks
Test your knowledge on the impact of reputational risk on a bank's operations, including the effects on borrowers, depositors, and investors. Learn how a scandal can affect the bank's loan portfolio and funding sources.
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