The auditor identifies that the bank launched trade finance services this year. The target clients are
multinational companies who actively support China's belt and road initiatives. Which scoring
themes would be affected? (Select Two.)
A. 11.2
B. 11.3
C. 12.1
D. 12.2
E. 13.1
AB
Trade finance services for multinational companies participating in China's Belt and Road initiatives
involve transactions with potential geopolitical, regulatory, and economic risks.
These transactions generally encompass cross-border activities, high-value accounts, and potentially
politically exposed persons (PEPs).
As these services involve international trade, they are inherently linked to economic activity and
geographical risks. FATF guidelines indicate the necessity to evaluate regions with different AML/CFT
maturity levels. This is consistent with theme 11.2, focusing on the understanding and mitigation of
risks associated with economic and geographical contexts.
The target clientele includes multinational companies, which might require enhanced customer due
diligence (EDD), especially when engaging with entities or PEPs from countries with varying
regulatory controls.
FATF Recommendations and Basel Committee insights emphasize robust customer identification,
verification, and ongoing monitoring, aligning with theme 11.3’s requirements.
This theme pertains more to specific reporting or transaction monitoring requirements that
might not directly relate to the initiation of trade finance services.
These themes are typically associated with procedural adjustments rather than
the scoring of risk profiles.
Advanced CAMS-Audit highlights the role of structured compliance frameworks in mitigating risks
tied to strategic initiatives like the Belt and Road.
Evaluators assess the institution's alignment with FATF, Basel Committee, and regional guidelines to
ensure adherence to best practices for risk mitigation.
The scoring themes A (11.2) and B (11.3) are significantly influenced by the introduction of trade
finance services targeting multinational corporations under China's Belt and Road initiatives. This is
due to the intertwined economic and geographical risks and the requisite enhanced due diligence
measures for high-risk customer segments.
The auditor identifies that the bank has launched trade finance services this year. When rating the
various themes of the risk mitigants, which are expected to be impacted by the launch of these
services? (Select Three.)
A. M1.1
B. M1.2
C. M2.1
D. M3.2
E. M4.2
F. M5.2
A, C, E
M1.1 - Risk Identification and Assessment
Trade finance introduces new types of risks such as exposure to cross-border transactions, multiple
parties, and complex financial instruments. These elements necessitate a reassessment of existing
risk frameworks to identify new vulnerabilities, including trade-based money laundering (TBML). As
detailed in the CAMS-Audit guidance, financial institutions must periodically update their risk
assessments to reflect changes in products and services.
M2.1 - Enhanced Due Diligence (EDD) on High-Risk Customers
Trade finance clients often involve politically exposed persons (PEPs), entities in high-risk
jurisdictions, or complex supply chains. According to FATF Recommendation 10 and CAMS standards,
banks must enhance customer due diligence measures, including obtaining additional information on
the customer's source of funds, beneficial ownership, and the nature of the business.
M4.2 - Transaction Monitoring Systems
The complexity of trade finance transactions requires robust monitoring systems capable of
identifying unusual patterns indicative of money laundering or terrorist financing. These systems
must be calibrated to flag discrepancies in trade documentation, over- or under-invoicing, and
deviations from expected trade flows, as emphasized in the FATF Recommendations and CAMS-Audit
references.
AML/CFT-document references specify the need for updated risk assessments and transaction
monitoring systems aligned with international AML standards for new services.
FATF Recommendations provide a framework for enhanced due diligence and risk-based approaches
for trade finance.
Following completion of testing and tuning of the parameters and thresholds of the transaction
monitoring model which final step should the team recommend as necessary to verify effective
model functioning?
A. Model validation
B. Audit continuous monitoring
C. Data validation
D. Regulatory approvals
A
Model validation ensures that the transaction monitoring model is functioning as intended,
effectively identifying suspicious transactions and mitigating AML/CFT risks.
It encompasses testing data accuracy, parameter relevance, threshold efficacy, and compliance with
regulatory requirements.
Validation includes end-to-end reviews, statistical evaluations, and expert assessments of model
outputs.
According to FATF and Basel Committee standards, model validation is a critical component of the
AML framework.
Audit continuous monitoring focuses on ongoing oversight, not the specific confirmation of initial
model functionality.
Data validation addresses data quality but does not verify operational model performance.
Regulatory approvals are necessary for compliance but are not a step in verifying model functioning.
What model test verifies that alerts indicative of potentially suspicious activity are not missed due to
threshold settings?
A. Black-box configuration
B. Above-the-line
C. Gap analysis
D. Below-the-line
D
Below-the-line testing evaluates scenarios where alerts were not generated but could have been if
the thresholds were set differently.
This testing method focuses on identifying potential gaps in the detection model that might lead to
missed alerts for suspicious activities.
This type of test ensures the system's thresholds are not too restrictive, which could result in
legitimate suspicious activities being overlooked.
It provides insight into whether the system needs re-calibration to balance false positives and missed
detections.
Analyze transactions that fall just below the alert generation threshold.
Identify whether these transactions exhibit patterns consistent with suspicious
activities.
Adjust thresholds to optimize the trade-off between sensitivity and specificity.
Advanced CAMS-Audit Reference:
CAMS-Audit guidelines detail below-the-line testing as an integral part of tuning and validating
monitoring models. It ensures that monitoring systems align with risk appetite and operational
realities.
FATF guidance on dynamic model validation highlights the importance of continuous review and
adaptation of thresholds to evolving typologies and risks.
Case Example and Regulatory Perspective:
Advanced CAMS-Audit recommends below-the-line tests especially in high-risk sectors, ensuring
robust detection mechanisms.
Regulatory expectations, as per FATF and Basel guidelines, require proactive measures to address
model gaps that below-the-line testing can identify.
Which recommendation should the audit team provide to address transaction monitoring (TM)
issues?
A. Switch off those detection scenarios that are producing too many false positives.
B. Apply the same thresholds across all client types to ensure alignment of risk coverage.
C. Perform a coverage assessment of the current suite of TM detection scenarios against the bank's
money laundering and terrorist financing risks
D. Provide training for first-line staff on how to review and disposition TM alerts.
C
Coverage assessment ensures that the TM scenarios address the full spectrum of identified money
laundering (ML) and terrorist financing (TF) risks relevant to the organization.
This aligns with FATF Recommendations on risk-based approaches and the effectiveness of
transaction monitoring systems.
Basel Committee guidelines stress that financial institutions must regularly review their transaction
monitoring coverage to ensure alignment with the risk landscape.
Which best explains why the auditor rates the audit finding on sanction screening severity high?
A. The efficiency of the sanction screening tool is not properly tuned due to the wrong sanctions lists.
B. The finding is on a different audit topic than the KYC related findings.
C. The tool might miss potential sanction violations given the long intervals before the sanctions lists
are updated.
D. The organization might have reported a sanction breach that is not a current sanction violation.
C
Infrequent updates of sanction lists create significant risks of missing sanctioned entities, increasing
legal, financial, and reputational risks for the institution.
FATF Recommendations emphasize the need for timely and accurate sanctions screening to prevent
facilitation of sanctioned transactions.
A delayed update to sanction lists is cited as a key failure point in regulatory penalties and
compliance audits.
Which KYC-related finding poses the most risk to the organization?
A. KYC requirements being considered a low priority not designed into business processes and
implemented after product launch
B. Sanctions fists that are updated on a periodic basis following an annual risk assessment
C. KYC processes not being integrated into the business and associated application systems
D. Backlogs and delays in maintaining client files in accordance with the organization’s policy
A
KYC integration is fundamental to ensuring that anti-money laundering controls are effective from
the outset of client onboarding. Delayed implementation of KYC increases the risk of onboarding
high-risk customers without adequate due diligence.
Advanced CAMS-Audit documentation stresses the importance of embedding KYC into business
processes during product design and rollout phases to mitigate risks.
Neglecting this requirement can expose the organization to severe regulatory penalties and
reputational damage.
Which is the most significant risk associated with KYC requirements being considered a low priority
not designed into processes and subsequently implemented after the products are already
launched?
A. Product launches may not be adequately prepared.
B. Client experience improves as accounts can be opened more quickly.
C. Product launches will motivate frontline to get more customers.
D. Frontline will not complete adequate CDD.
D
Absence of CDD processes during product launch leaves the institution exposed to onboarding high-
risk customers without proper risk assessment.
FATF standards emphasize embedding CDD in all stages of customer interaction to mitigate ML/TF
risks.
=========================
Which should the external auditor recommend to ensure that the institution did not facilitate
transactions involving a sanctioned person?
A. Re-screen all transactions over the period of time when the updated sanction lists were not
uploaded against the current sanctions lists.
B. Perform a security risk and access assessment on the sanction screening tool to ensure more
timely sanctions lists are uploaded.
C. Re-screen all transactions based on the sanctions lists that were active at that time but not
uploaded.
D. Periodically monitor the sanctions lists uploaded by the screening tool to ensure the most up-to-
date lists are in the system.
A
Re-screening ensures compliance with sanctions and identifies potential violations retrospectively.
This is a critical regulatory requirement for addressing gaps in screening coverage.
Emphasize retrospective reviews in cases of system lapses to maintain the integrity of the sanctions
compliance program.
Which conclusion should the auditor make regarding the staff attendance of the periodic AML
training program organized by the bank?
A. Staff attendance is complete because the training is mandatory for staff in the business,
operations compliance and senior management whose duties involve knowledge of AML controls
and processes.
B. Staff attendance is complete because all staff in the institution are required to attend the AML
training as part of the staff onboarding process.
C. Staff attendance is incomplete because the board of directors is not part of the staff required to
attend the periodic trainings, and there is no other specially designed AML training for the board.
D. Staff attendance is incomplete because the compliance officer or the delegates are not part of the
staff facilitating the 3-hour periodic AML training.
C
Advanced CAMS-Audit and FATF emphasize that AML training programs should be inclusive of all
stakeholders, including senior management and board members, as they are integral to establishing
an effective AML/CFT compliance culture.
Directors require tailored AML training to address strategic oversight responsibilities rather than
operational controls. Periodic training is mandatory to keep the board updated on regulatory
changes and institutional risk profile adjustments.
Exclusion of the board from AML training reflects a gap in the institution’s AML framework,
potentially exposing it to regulatory scrutiny.
FATF Recommendations mandate training for all levels of an institution, explicitly highlighting senior
management and governance roles in compliance efforts.
What conclusion should the auditor make regarding AML training for outsourced AML providers?
A. The approach outlined by the Dank is deficient, as the service providers are not pan of the Dank s
AML training during its staff onboarding.
B. The approach outlined by the Dank is appropriate as the Dank can rely on a professional service
provider to deliver the AML training program for the Dank s staff.
C. The approach outlined by the Dank is deficient, as it does not provide controls for the Dank to
verify training delivered by outsourced providers to the bank's staff is appropriate.
D. The approach outlined by the bank Is appropriate as it considers practical issues such as time zone
differences and availability of both classroom and online sessions.
C
CAMS-Audit emphasizes that institutions must ensure outsourced providers deliver training aligned
with internal policies and regulatory standards.
Review the content of training sessions.
Validate trainer qualifications.
Assess the effectiveness of training through feedback or testing.
Failure to implement verification mechanisms for outsourced training compromises the consistency
and quality of the AML education program.
FATF and Basel guidelines mandate oversight of third-party service providers, especially for critical
functions like AML compliance training.
The auditor finds that the customer risk assessment (CRA) is completed at initial onboarding and is
repealed for each customer every other year. The auditor’s observations should Include that the CRA
should:
A. be updated more often given the risk of the entity.
B. include an assessment of jurisdiction where the customer currently resides as this may have
changed.
C. allow for sales oy third patties other than advisors since most of the customers are local residents.
D. include a qualitative overlay that 95% of the products offered are subject to regulatory
exemptions.
B
A comprehensive CRA should incorporate jurisdictional risks, as customer location changes could
introduce new risks, such as exposure to high-risk or non-compliant jurisdictions.
Periodic updates to the CRA, including changes in customer location, align with FATF’s risk-based
approach and Recommendation 10.
Omission of jurisdictional assessments could result in undetected risks, undermining the integrity of
the AML program.
The company has automated the completion of the customer risk assessment (CRA) into its main
customer relationship management (CRM) system The CRM has needs recording the overall risk level
assessed (Standard. Enhanced), the ID number of the staff member who completed the assessment,
and me date of the last assessment Which additional fields should the auditor recommend to
document the CRA process? (Select Three.)
A. Age (Years)
B. Risk factors (Y/N. if Y please specify)
C. Type of customer (Trust. Company Individual)
D. Annual premium (S)
E. Residence (Country)
F. Photo ID taken (Passport Driver’s License. Other)
B, C, E
Identify and document specific risk indicators for transparency and consistent
assessment. This ensures alignment with the risk-based approach advocated by FATF.
Differentiating customer types (trust, company, individual) is critical for tailoring
due diligence measures to the unique risks associated with each type.
Tracking customer jurisdiction ensures risk assessments reflect geopolitical and
regulatory changes, fulfilling FATF compliance expectations.
These fields enhance traceability, accountability, and risk profiling, ensuring the CRA process is
comprehensive and meets regulatory standards.
Documentation must be detailed and periodically reviewed to address evolving AML risks effectively,
as recommended by CAMS-Audit guidelines.
Which findings indicate issues that would cause a lack of understanding of the risks associated with
the business the financial institution conducts? (Select Three.)
A. Finding 1
B. Finding 3
C. Finding 4
D. Finding 5
E. Finding 6
F. Finding 8
ACF
Finding 1
This highlights fundamental gaps in the risk assessment process. A lack of clarity in identifying and
analyzing risks associated with certain products, services, or client categories reflects an incomplete
understanding of the business's risk landscape.
CAMS-Audit emphasizes the importance of comprehensive risk assessments to identify inherent and
residual risks and align them with the institution's overall AML/CFT framework.
Finding 4
This pertains to inadequate integration of risk mitigation controls into operational processes, leading
to blind spots in identifying emerging threats. Institutions that do not properly embed risk controls
often fail to adapt to changing business or regulatory requirements.
Reference to FATF recommendations underlines the necessity of embedding controls that reflect
ongoing and emerging risks.
Finding 8
Failure to implement effective monitoring mechanisms or maintain updated customer or transaction
profiles suggests a superficial approach to understanding risk exposure. Without robust data tracking,
financial institutions may overlook key risk indicators.
CAMS-Audit documents stress the need for effective transaction and customer profile monitoring
systems as part of a sound risk-based approach.
Which finding indicates issues that could result in clients being subject to incorrect scenarios and
thresholds?
A. Firming 2
B. Finding 4
C. Finding 5
D. Finding 7
D
Finding 4 typically points to issues with the alignment of customer segmentation or risk profiling.
Incorrect segmentation or categorization directly impacts the assignment of scenarios and
thresholds, leading to clients being subjected to inappropriate monitoring settings.
For example, placing a low-risk client in a high-risk threshold group can cause unnecessary alerts,
while the opposite scenario might miss genuine suspicious activities.
May relate to broader systemic issues but does not specifically highlight misalignment
with thresholds or scenarios.
Typically involves data accuracy concerns but does not directly result in the application of
incorrect scenarios or thresholds.
Often pertains to gaps in coverage or monitoring rather than specific issues in the
calibration of scenarios and thresholds.
Advanced CAMS-Audit emphasizes the importance of precise customer segmentation and scenario
calibration to ensure transaction monitoring systems operate efficiently and effectively. Findings
pointing to misalignments in these areas are critical indicators of potential weaknesses.
FATF and Basel Committee standards require risk-based monitoring tailored to the risk profile of each
customer. Misaligned thresholds violate this principle, potentially leading to regulatory scrutiny.
The correct answer is B. Finding 4, as it identifies the misalignment of scenarios and thresholds with
customer risk profiles, which is a critical issue in ensuring effective AML monitoring systems.