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

What is essential to assess according to FATF Recommendation 7 regarding correspondent banks?

1. Only the financial history of the bank

2. The bank's profitability over the past five years

3. The bank's management, ownership, and AML controls

4. The geographical location of the bank's headquarters

The correct answer is: The bank's management, ownership, and AML controls

FATF Recommendation 7 focuses on the necessity for financial institutions to assess the risks associated with correspondent banking relationships. The key components of this assessment are the management structure, ownership, and the effectiveness of anti-money laundering (AML) controls of the correspondent banks. Understanding the management and ownership helps in evaluating the integrity and stability of the financial institution, as these factors can indicate potential risks related to governance and compliance. Furthermore, a thorough review of the AML controls is crucial because it directly impacts how well the bank can mitigate risks of money laundering and terrorist financing. Therefore, assessing these elements informs the bank about the risks it may face in maintaining a correspondent relationship and ensures that appropriate measures are taken to uphold compliance standards and protect the bank from potential illicit activities. While the other options may provide some relevant information, they do not encompass the broader assessment mandated by FATF, which emphasizes management, ownership, and AML controls as critical aspects for evaluating correspondent banks.