Foundations Of KYC/AML Flashcards
(20 cards)
What is the purpose of having controls to Know Your Customer, or KYC?
To manage the financial crime risk to an organization.
What does the term ‘customer’ mean in an AML context?
A natural or legal person who wants to establish a relationship with your organization.
What are the key customer types in financial services?
Natural persons (including PEPs) and legal persons (corporate entities, governments, etc.).
What are the key risks in financial crime prevention controls?
Regulatory, legal, financial, and reputational risks.
What are the primary AML regulations for the US, EU, and UK?
US: Bank Secrecy Act
EU: Anti-Money Laundering Directive
UK: Money Laundering and Terrorist Financing (Amendment) Regulation 2019
What are the four categories of risk in money laundering prevention?
Customer, jurisdiction, product, and channel.
What are some examples of customer risk and red flags?
Unusual activity, money mule indicators, uncooperative behavior, and suspicious transaction patterns.
What are the two types of politically exposed persons (PEPs) according to FATF?
Foreign PEPs and Domestic PEPs.
Why are shell and shelf companies considered high risk?
They can mask ownership and commingle illicit with legitimate funds.
What are indicators that flag a country or jurisdiction as high risk?
Poor AML laws, corruption, economic sanctions, tax havens.
How can financial products carry higher risk?
By nature (e.g. instant payments) or misuse (e.g. early policy cancellations).
What is ‘channel risk’?
Risk from the method of product delivery.
What is the benefit of using a risk-based approach?
Efficient resource use and prioritized due diligence based on risk.
What are the five components of the internal control framework?
Control environment, risk assessment, control activities, information and communication, and monitoring.
What is the equation for residual risk?
Inherent Risk – Controlled Risk = Residual Risk
What defines an organization’s risk-based approach?
Its risk appetite based on strategic goals.
Why are organization-specific policies and procedures important?
They align actions with risk appetite and ensure compliance.
What are the steps of the four-step research model?
Assess, explore, organize, present.
What does ‘duty to report’ mean?
Obligation to report suspected financial crime to authorities.
What does ‘tipping off’ mean?
Illegally warning someone about a money laundering investigation.
