Which step should be taken to understand the types of financial institutions to whom the services are being offered when a correspondent bank permits "nested" relationships according to the…

Question

Options

• AReview peer-group clients by risk category
• BUnderstand the type and volume of accounts serviced
• CEvaluate the distribution of downstream correspondents and identify any direct or indirect issues
• DObtain independent audits or examination reports for "nested" relationships to determine risk

• A
  6% (3)
• B
  10% (5)
• C
  82% (40)
• D
  2% (1)

Explanation

According to the Wolfsberg Group, a correspondent bank should evaluate the distribution of downstream correspondents and identify any direct or indirect issues when it permits "nested" relationships, which are arrangements where a respondent bank provides correspondent banking services to other banks that are not customers of the correspondent bank. This step is important to understand the types of financial institutions to whom the services are being offered and the potential risks they pose. The correspondent bank should also obtain information on the nature and extent of the nested activity, the due diligence performed by the respondent bank on the nested banks, and the controls and monitoring in place to prevent financial crime.

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