Financial Risk Manager Part 2

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Explanation:

According to the Basel Committee guidelines on the sound management of risks related to money laundering and financing of terrorism, the third line of defense (internal audit) plays a critical role in independently evaluating the risk management and controls of the bank. External auditors also play an important role in providing assurance over the effectiveness of the bank's controls and regulatory compliance.

Option A is incorrect because the first line of defense (business units) is responsible for identifying, managing, and monitoring ML/FT risks on a daily basis, not the chief AML officer (who is in the second line).
Option B is incorrect because the chief AML/CFT officer, rather than the CRO, is typically the primary point of contact with financial intelligence units.
Option D is incorrect because employee screening is an operational control usually executed by Human Resources (part of the first line of defense), not the corporate operational risk function (second line).

Explanation:

Option A is incorrect because the first line of defense (business units) is responsible for identifying, managing, and monitoring ML/FT risks on a daily basis, not the chief AML officer (who is in the second line).
Option B is incorrect because the chief AML/CFT officer, rather than the CRO, is typically the primary point of contact with financial intelligence units.
Option D is incorrect because employee screening is an operational control usually executed by Human Resources (part of the first line of defense), not the corporate operational risk function (second line).

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Question A regional bank follows the three lines of defense approach for managing its operational risk. The CRO of the bank is concerned that several competing banks have recently received regulatory fines resulting from poor management of risks related to money laundering and financing of terrorism (ML/FT), and wants to improve the bank’s management of these risks. The CRO reviews the Basel Committee guidelines for the management of ML/FT risks and suggests that the bank adopt industry best practices for different business functions in each line of defense. Which of the following would be most appropriate for the CRO to recommend addressing ML/FT risks?

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Last updated: July 5, 2026 at 07:28

The chief officer in charge of ML/FT risk should be responsible for monitoring and managing these risks within each of the business lines on a daily basis.

The CRO should serve as the primary point of contact with regulatory supervisors and financial intelligence units on any issues related to ML/FT risk.

Internal and external auditors should evaluate the bank’s risk controls to ensure that they are effective in managing ML/FT risk as well as compliant with regulations.

The corporate operational risk function should screen current and prospective employees as part of the second line of defense in managing ML/FT risk.