Question: Critically evaluate the role of regulatory frameworks and international standards, such as the Financial Action Task Force (FATF) recommendations, in guiding financial institutions in managing PEPs

Question 1

As a result of your recent hard work, you have been identified by your management team as leader of the future within ICT Bank (a mid-sized financial institution, based in a jurisdiction of your choice), you have been selected to join a ‘Mentor for Success (MFS) programme, sponsored by the CEO.

The MFS programme has been specially created by the Senior Management to provide an internal succession plan for the role of Money Laundering Reporting Officer (MLRO) or local equivalent and will allow you to work closely with the MLRO to develop the competencies to manage AML risk in the firm in the future.

As part of your first task, you are going to work alongside the Money Laundering Reporting Officer (MLRO) as she has recently found out that the regulators are preparing for a visit to the firm and several queries have recently emerged from the internal audit team as follows:

• Weak customer due diligence controls – It has been identified that the firm may have inadequate customer due diligence processes, allowing for onboarding of high- risk clients without proper scrutiny. This has potentially resulted in several instances where politically exposed persons (PEPs) have been onboarded without appropriate risk ratings and approvals.

• Lack of Transaction Monitoring – The firms transaction monitoring system has been outdated and failed to detect unusual or suspicious transactions. This appears to have allowed illicit funds to flow through the bank's accounts undetected.

• Insufficient Training - Employees, particularly relationship managers and frontline staff, lacked proper training on AML regulations and red flag indicators. This led to missed opportunities to identify and report suspicious activities.

• Inadequate Reporting - When some employees have identified potentially suspicious transactions, they either did not report them, or the reports were not escalated effectively within the bank's internal reporting structure.

The CEO has recognised the importance of the audit findings however, they have made it clear to you and the MLRO that you should not lose sight of the Banks strategic 5-year growth plan and expects any issues to be resolved discreetly without impacting the imminent growth of the organisation, and with the upcoming regulatory visit in mind.

You have heard rumours that the upcoming regulatory visit is not a coincidence. The audit findings may have come to light when a whistleblower within the bank anonymously reported to regulatory authorities about the lax AML controls and potential violations. You believe that this has triggered a thorough investigation by regulatory agencies, who may be looking at the alarming allegations.

In preparation of the visit, the MLRO has asked you to support her with an executive summary on the key issues and focus on the following areas: