To understand if the customer operates in line with the firm's risk appetite for a specific industry segment, a financial institution must:

Question

Options

• Aobtain sufficient customer information to understand the nature and purpose of customer
• Bobtain identifying information for beneficial owners through a completed certification form from the
• Cobtain the name and address, country identification number and date of birth of a non-customer
• Dobtain the name, date of birth for an individual, address and identification number from each

• A
  78% (25)
• B
  13% (4)
• C
  3% (1)
• D
  6% (2)

Explanation

Customer due diligence (CDD) is a key component of anti-money laundering (AML) and counter- terrorism financing (CTF) compliance. CDD helps financial institutions identify and verify their customers, assess their risk levels, and monitor their transactions for suspicious activity. One of the main objectives of CDD is to understand the nature and purpose of customer relationships, which involves collecting and analyzing relevant information about the customer's business activities, expected transaction patterns, source and destination of funds, and beneficial ownership. This information helps financial institutions develop a customer risk profile, which is a tool to measure and manage the risk exposure of each customer. A customer risk profile reflects the financial institution's risk appetite, which is the level and type of risk that the institution is willing and able to accept. By comparing the customer's risk profile with the institution's risk appetite, the institution can determine if the customer operates in line with the firm's expectations and requirements for a specific industry segment. For example, if the institution has a low risk appetite for customers involved in high-risk sectors such as gambling, cryptocurrency, or arms trade, it can use the customer risk profile to identify and mitigate any potential risks associated with such customers.

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