According to FATF, FIs should exit the relationship with a client in which case?
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A. B. C. D.C
The Financial Action Task Force (FATF) is an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system. The FATF has issued guidance on when Financial Institutions (FIs) should exit the relationship with a client.
The reasons why FIs should exit a relationship with a client are based on the potential risk of money laundering and terrorist financing associated with the client. The following are the situations in which the FATF recommends that FIs should exit the relationship with a client:
A. The client is a politically exposed person (PEP): A PEP is an individual who is or has been entrusted with a prominent public function, such as a government official, a senior executive in a state-owned enterprise, or a high-ranking military officer. PEPs are considered to be higher-risk clients due to their potential access to public funds and their influence over government decisions. If an FI identifies that a client is a PEP, it should conduct enhanced due diligence (EDD) measures, and if the risk is still deemed too high, it should exit the relationship with the client.
B. There is a change in ownership structure: A change in ownership structure may increase the risk of money laundering and terrorist financing. For example, if a previously low-risk client is acquired by a high-risk individual or entity, or if the client's ownership structure becomes more complex, it may be difficult for the FI to monitor and mitigate the associated risks. Therefore, FIs should conduct a risk assessment of the change in ownership structure, and if the risk is deemed too high, they should exit the relationship with the client.
C. The country of incorporation has been elevated to high-risk: The FATF maintains a list of countries that it considers to have strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes. If the country of incorporation of the client is on the FATF list, it may increase the risk of money laundering and terrorist financing associated with the client. Therefore, FIs should conduct a risk assessment of the client's country of incorporation, and if the risk is deemed too high, they should exit the relationship with the client.
D. The client refuses to update information: If a client refuses to update information, such as their beneficial ownership information or the purpose and intended nature of the business relationship, it may increase the risk of money laundering and terrorist financing. FIs should make every effort to obtain up-to-date information from their clients, and if a client consistently refuses to do so, the FI should consider exiting the relationship.
In conclusion, FIs should exit the relationship with a client if they are a PEP, there is a change in ownership structure, the country of incorporation has been elevated to high-risk, or the client refuses to update information. These situations increase the risk of money laundering and terrorist financing, and FIs should take appropriate measures to mitigate those risks.