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Explanation:
The correct answer is C.
A risk-based approach to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) entails that a financial institution identifies, assesses, and understands the specific money laundering and terrorist financing risks it is exposed to. Consequently, it allocates its compliance resources proportionally to those risks. By applying enhanced due diligence and stricter monitoring to higher-risk customers, products, and geographies, banks can most effectively and efficiently detect and prevent instances of money laundering and terrorist financing.
Choices A and D are incorrect because an AML/CFT framework's purpose is regulatory compliance and the prevention of financial crime, not to monitor profits or maximize return on investment.
Choice B is incorrect because a risk-based approach relies on evaluating the actual risk profile rather than merely choosing a qualitative method over a quantitative one; it typically employs a mix of both qualitative and quantitative assessments.
Q.3128 What is the reasoning behind implementing a “risk-based anti-money laundering and combating financial terrorism approach”?
A
It allows banks to focus on selling products that surpass a specified “hurdle” rate of return.
B
A qualitative approach would yield better results than a quantitative approach.
C
Banks can best detect instances of money laundering by customers where the money laundering risks are high.
D
It allows banks to best monitor their profits.
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