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?
Answer(s): B
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:
Answer(s): C
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?
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?
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?
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.
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