Conduct and Practices Handbook Course (CPH) Quiz 16

One of the responsibilities of an independent risk management is to identify and assess, on an ongoing basis, the covered bank’s material aggregate risks and use such risk assessments as the basis for fulfilling its responsibilities for determining if actions need to be taken to strengthen risk management or reduce risk given changes in the covered bank’s risk profile or other conditions.

The Audit Committee identifies the root cause of any material issues which include a determination of whether the root cause creates an issue that has an impact on one organizational unit or multiple organizational units within the covered bank. And a determination of the effectiveness of front line units and independent risk management in identifying and resolving issues in a timely manner.

One of the attributes of an internal audit is adequate documentation of tests and findings and corrective actions.

One of the principal recurring responsibility of the risk management committee is to review with management all the risk categories, including any risk concentration.

The Federal Reserve views applicable to large banking organizations with complex compliance profiles are organizations that should implement a firmwide approach to compliance risk management and oversight; independence of compliance staff; compliance monitoring and testing; responsibilities of boards of directors and senior management regarding compliance risk management and oversight.

Independent directors in risk governance structure means he/she should not be an officer or employee of the parent company or bank and has not been an officer or employee of the parent company or bank during the previous three years; he/she should not be a member of the immediate family of a person who is, or has been within the last three years, an executive officer of the parent company or bank, lastly, he/she should qualify as an independent director under the listing standards of a national securities exchange, as demonstrated to the satisfaction of the OCC.

The training program for the board of directors includes complex products, services, lines of business, and risks that have a significant impact on the covered bank; laws, regulations, and supervisory requirements applicable to the covered bank; and other topics identified by the board of directors.

Banks may have more than one chief risk executive.

A Front line unit means any organizational unit or function that is accountable for a risk that engages in activities designed to generate revenue or reduce expenses.

One of the responsibilities of an internal audit is to maintain a complete and current inventory of all of the covered bank’s material processes, product lines, services, and functions, and assess the risks, including emerging risks, associated with each, which collectively provide a basis for the audit plan described in these guidelines.

The attributes of an internal audit are monitoring and testing the system of internal controls and business processes with qualified staff; adequate documentation of tests and findings and corrective actions; verification and review of management actions to address material weaknesses; review by the financial institution’s audit committee or board of directors of the effectiveness of the internal audit function.

A typical charter for a risk management committee is its purpose, membership, chairperson, deputy and secretary, quorum, meetings, reporting requirements and responsibilities.

A subcommittee of AML/CTF committee is called the following – Know Your Customer. – Currency transaction reporting. – Transaction monitoring. – AML/CTF technology. – AML/CTF investigations. – Suspicious activity reporting. – Regional AML/CTF committees.

AML/CTF committee assumes responsibility for reviewing reports covering the status of KYC and customer on-boarding. Risk assessments. Transaction monitoring alerts. AML/CTF cases. SARs filed. AML/CTF technology projects. New products, delivery channels, and geographies. AML/CTF training program. Significant recent cases and enforcement actions.

One example of Sanctions Screening committee review is sanctions screening information technology projects.

The Sanctions Screening Committee is responsible for managing the charter for the sanctions committee itself as well as the charters of the subcommittees that report to it, such as sanctions information technology, regional sanctions screening locations, customer screening, transactions screening, and list management.

The Audit Committee is responsible for approving all decisions regarding the appointment or removal and annual compensation and salary adjustment of the chief audit executive.

Risk management focused on senior management, independent risk management, internal audit, and risk management committees are the main parties involved in managing risk.

Having a risk appetite is forward-looking in nature, and ultimately determines what types of risk a financial institution deems worthwhile pursuing.

Risk management components stresses the importance of the risk appetite statement and the risk assessment program within the risk governance framework in a financial institution; develops a level of competence among compliance professionals in understanding the regulatory expectations of a risk governance framework as suits those hoping to fill a higher level risk management position upon receiving their CAMS Risk Management Certification; develops knowledge and skills for developing a risk appetite statement and an overview of managing risk to an acceptable standard; introduces an appreciation of a risk management program and a recognition of the important success factors.

Policies are to be written at a high principle level in order that they do not require frequent change or updating.

The examples of documented procedures that cover the regular business processes are Customer due diligence, enhanced due diligence, Special due diligence and High-risk account approval.

Procedures describe the steps required to execute a business process which ensures compliance with the related policy. A hierarchy of policies is required to cover all the AML/CTF risk governance framework areas and activities, including Bank teller operations, Loan modifications, Correspondent banking, Private banking and lastly, Training.

Risk appetite Statement is retrospective and establishes the limits within which senior management must observe the execution of the strategic plan for the financial institution.

A set of strategic objectives should be developed, agreed to, and implemented within the precepts of the risk appetite statement, which specifies the balance between business risk and the growth of the business.

To be aware of the most common types of risk will enable compliance from professionals to easily determine what specific risks their financial institution is most susceptible to.

Fraud risk is an exposure to intentional misconduct, designed to evade detection. Included in this is the explicit consideration of all types of fraud schemes and scenarios; incentives, pressures, and opportunities to commit fraud; and IT fraud risks specific to the organization.

An action plan should be in a central location or database for safekeeping, in order that they can be referenced as needed at a later date.

Acceptance is informing them that acceptance from the a formal risk acceptance form should be completed, which includes tactical temporary controls that can be executed during the development period.

It stated that for banks with less than $1 billion in assets, “It is not expected that this guidance will pertain to FDIC-supervised institutions with under $1 billion in total assets unless the institution’s model use is significant, complex, or poses elevated risk to the institution.”