Which situation would most likely increase the inherent risk of a corporate customer?
D
Explanation:
Expanding business operations beyond the home country increases inherent risk due to cross-border
transactions, exposure to multiple jurisdictions, and potential dealings with regions of higher money
laundering or terrorism financing risk.
A compliance officer in an international bank is reviewing new customer onboarding files. The
relationship manager provides a whole set of customer documents, in addition to information from
open source research. What information should be used by the compliance officer as secondary
documentation to verify the primary documentation?
A
Explanation:
Secondary documentation for verification purposes should be recent, reliable, and issued by a
trusted source. Utility bills, phone bills, or bank statements issued within the last three months are
commonly accepted to confirm address and identity details provided in primary documentation.
Sanctions screening is important before onboarding a customer, or when using the services of a
financial institution, because it:
C
Explanation:
Sanctions screening is conducted to detect whether a customer or related party is on a sanctions list
or linked to a sanctioned location, ensuring compliance with legal and regulatory requirements
before establishing or continuing a business relationship.
Which is the best technique to effectively document a customer profile?
D
Explanation:
Effective customer profile documentation should be clear, precise, and free from subjective
language. Providing context and avoiding ambiguity ensures the information is reliable, verifiable,
and usable for risk assessment and compliance purposes.
A KYC analyst is running an adverse media search on a prospective client’s directors and learns that
one of the directors has been accused of receiving bribery payments. Which step should the KYC
analyst take next?
B
Explanation:
Allegations of bribery involving a director are a significant red flag for potential financial crime risk.
The KYC analyst should escalate the finding to the compliance team for assessment and guidance
before making any decision on the business relationship.
A bank’s business team has developed a new strategy, which includes the introduction of prepaid
cards as a new high-risk product offering. The compliance team has proposed to impose a monetary
limit on each prepaid card and limit the offering to the existing customers of the bank only. Which
best describes the risk impact of the controls proposed by the compliance team?
B
Explanation:
Inherent risk is the natural risk before controls are applied. The compliance team’s measures
(monetary limits and restricting to existing customers) reduce the exposure to misuse, thereby
lowering the residual risk - the risk that remains after controls are implemented.
Financial institutions should ensure that a customer’s risk weighting:
C
Explanation:
A proper customer risk assessment must consider multiple factors - such as geography, products,
services, and customer profile - so that the overall risk rating is balanced and not disproportionately
influenced by any single criterion.
Which is a preferred source of non-documentary verification?
B
Explanation:
A credit report is a reliable non-documentary verification source because it is generated by an
independent, trusted agency and contains validated personal and financial information that can help
confirm a customer’s identity.
A transaction monitoring alert is generated by an automated system. The alert was triggered by a
scenario to flag large cash payments. The analyst is not able to explain the behavior that triggered
the alert. Which step should a KYC analyst take next?
C
Explanation:
When an analyst cannot reasonably explain activity flagged by transaction monitoring, the correct
step is to escalate the case to the second line of defense (compliance or investigations team) for
further review before any reporting or account action is taken.
A foreign customer claims as source of wealth the sale of inherited real estate. Which would be an
appropriate next step in the verification process?
B
Explanation:
Obtaining the sale contract provides documented evidence of the transaction, allowing verification
of both the existence of the inherited property and the legitimacy of the proceeds as the customer’s
source of wealth.