CAMS Risk Assessment and Management 2 — Questions and Answers
Question 1: What is a 'Money Services Business' (MSB) and why does it represent elevated AML risk?
- A traditional bank that offers money market accounts
- A business that provides financial services like currency exchange, money transmission, or check cashing — elevated risk because they handle large volumes of cash and may serve customers with limited banking access (Correct answer)
- Any business that accepts payments for services rendered
- A financial advisor firm that manages client money
Correct answer: A business that provides financial services like currency exchange, money transmission, or check cashing — elevated risk because they handle large volumes of cash and may serve customers with limited banking access
MSBs (currency dealers, money transmitters, check cashers, prepaid card issuers) handle significant cash volumes, may serve unbanked populations with limited documentation, and are frequently used in structuring and placement schemes, creating elevated AML risk.
Question 2: What is 'geographic risk' in an AML context and how should it factor into customer risk ratings?
- The risk of physical crime near the institution's branches
- The elevated AML risk associated with customers, transactions, or counterparties connected to jurisdictions with weak AML controls, high corruption, or active sanctions programs (Correct answer)
- The risk that geographic expansion will dilute the institution's AML program quality
- Currency exchange rate risk in international transactions
Correct answer: The elevated AML risk associated with customers, transactions, or counterparties connected to jurisdictions with weak AML controls, high corruption, or active sanctions programs
Geographic risk elevates AML concern when customers, their beneficial owners, counterparties, or transaction flows are connected to high-risk jurisdictions identified by FATF, OFAC, or domestic authorities as having deficient AML controls or significant corruption.
Question 3: What is a 'risk-based monitoring' approach to transaction surveillance?
- Monitoring all transactions with the same level of scrutiny to ensure equal treatment
- Calibrating transaction monitoring alert thresholds and rules based on the customer's risk profile, applying more sensitive monitoring to high-risk customers (Correct answer)
- Only monitoring transactions above a fixed dollar threshold regardless of risk profile
- Delegating transaction monitoring responsibility to high-risk customers themselves
Correct answer: Calibrating transaction monitoring alert thresholds and rules based on the customer's risk profile, applying more sensitive monitoring to high-risk customers
Risk-based monitoring tailors transaction monitoring intensity to customer risk — high-risk customers may have lower alert thresholds, more scenarios applied, and shorter review cycles, while low-risk customers may trigger fewer alerts.
Question 4: What is the 'three lines of defense' model in AML risk management?
- Law enforcement, regulators, and financial institutions as three external barriers against money laundering
- Business units (1st line), compliance/risk management (2nd line), and internal audit (3rd line) as three internal layers of AML control and oversight (Correct answer)
- Transaction monitoring, SAR filing, and law enforcement as three sequential steps in AML response
- Customer onboarding, transaction monitoring, and account closure as three preventive measures
Correct answer: Business units (1st line), compliance/risk management (2nd line), and internal audit (3rd line) as three internal layers of AML control and oversight
The three lines of defense model assigns AML responsibilities across: 1st line (business units that own and manage risk), 2nd line (compliance/risk functions that oversee and advise), and 3rd line (internal audit that independently tests effectiveness).
Question 5: What is a 'typology' in AML, and how is it used in risk management?
- A system for classifying customer types for CDD purposes
- A documented description of a money laundering method or scheme, used to inform risk assessments, monitoring rules, and staff training (Correct answer)
- A regulatory categorization of financial institutions by risk level
- The type of documentation required for different transaction sizes
Correct answer: A documented description of a money laundering method or scheme, used to inform risk assessments, monitoring rules, and staff training
AML typologies are research-based descriptions of how criminals launder money (e.g., trade-based money laundering, real estate laundering, virtual currency layering), published by FATF and FIUs to help institutions recognize these patterns and calibrate controls.
Question 6: How does 'product risk' factor into an institution's overall AML risk assessment?
- Product risk only applies to financial products sold to high-net-worth clients
- Different financial products and services carry different AML risk levels based on factors like anonymity, ease of use for money laundering, cross-border capabilities, and cash handling features (Correct answer)
- Product risk is only relevant for derivatives and other complex financial instruments
- All financial products carry equal AML risk regardless of their features
Correct answer: Different financial products and services carry different AML risk levels based on factors like anonymity, ease of use for money laundering, cross-border capabilities, and cash handling features
Products like prepaid cards, private banking, correspondent banking, and international wire transfers carry higher AML risk than simple retail savings accounts because of their anonymity features, transaction speed, or cross-border reach.
CAMS Risk Assessment and Management 2
What is a 'Money Services Business' (MSB) and why does it represent elevated AML risk?