Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What is a consequence of inadequate monitoring of PEP accounts?

1. It can lead to increased business development opportunities

2. It may expose the bank to significant legal risks

3. It enhances customer trust in the institution

4. It encourages higher transaction volumes

The correct answer is: It may expose the bank to significant legal risks

Inadequate monitoring of Politically Exposed Persons (PEP) accounts can expose a bank to significant legal risks. PEPs are individuals who hold prominent public positions and may be at a higher risk for involvement in corruption or money laundering due to their influence and access to government resources. When a financial institution fails to closely monitor these accounts, it increases the likelihood of insufficient due diligence, leading to potential violations of anti-money laundering regulations. This lack of monitoring can result in the institution failing to detect and report suspicious activities, which not only puts it at risk for regulatory penalties but can also damage its reputation among clients and stakeholders. Regulatory bodies expect enhanced scrutiny and specific compliance measures for PEP accounts; therefore, neglecting these requirements amplifies a bank's exposure to legal consequences and could result in fines and other legal actions. Enhanced oversight is crucial for managing the risks associated with these high-profile clients while ensuring compliance with legal standards.