Senior management bears the ultimate responsibility for approving a financial institution's relationship with a politically exposed person (PEP). The institution must ensure that appropriate measures are taken to manage the risks associated with a PEP, including conducting enhanced due diligence and applying appropriate mitigating measures. The relationship manager and the OKYC analyst may identify the risks associated with the PEP and recommend mitigating measures, but it is ultimately the responsibility of senior management to approve the relationship and ensure that the appropriate measures are taken. The enhanced due diligence compliance officer is responsible for ensuring that all due diligence requirements are met.

According to the FATF Recommendations, financial institutions should maintain all necessary records on transactions and customers for at least five years, and make them available to competent authorities upon appropriate authority1. This includes records and documents related to suspicious transactions that have been reported to the financial intelligence unit (FIU) or other designated authorities. Providing the supporting documentation to competent authorities upon request is essential for the investigation and prosecution of money laundering and terrorist financing offences, as well as for the identification and tracing of criminal assets2.
Hinting to the customer that she should come in and explain her behavior is not a correct answer, as it may tip off the customer about the suspicion and compromise the effectiveness of the reporting system. Financial institutions should not disclose to the customer or to third parties that a suspicious transaction report (STR) or related information is being reported to the FIU3.
Maintaining adequate written documentation of all individuals and transactions reported is not a sufficient answer, as it does not imply cooperation with competent authorities. Financial institutions should not only keep records, but also provide them to the authorities when requested.
Submitting information upon receiving a legal request from parties involved in a civil lawsuit is not a relevant answer, as it does not relate to the cooperation with competent authorities for AML/CFT purposes. Civil lawsuits are not part of the AML/CFT framework, and financial institutions should not disclose confidential information to private parties without proper legal grounds.
:
FATF Recommendation 11: Record-keeping 1
FATF Recommendation 31: Powers of law enforcement and investigative authorities 2 FATF Recommendation 21: Tipping-off and confidentiality 3

According to the BSA/AML Manual1, one purpose of filing SARs is to identify violations or potential violations of law to the appropriate law enforcement authorities for criminal investigation. Therefore, when an institution receives a document request from law enforcement with regard to an STR that the institution has filed, it should cooperate and provide the documents that were previously collected to support the STR. This will help the law enforcement agency to conduct its investigation and follow up on the suspicious activity reported by the institution. The institution should also maintain the confidentiality of the STR and the document request, and avoid tipping off the customer or any other person involved in the suspicious activity.
:
BSA/AML Manual1
Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations2 Suspicious Transaction Report STR3

The Basel Committee on Banking Supervision (BCBS) sets global standards for bank governance and states that the Board of Directors plays a critical role in AML oversight.
Option D (Correct): The Board is responsible for:
Establishing and approving the AML compliance function.
Ensuring the compliance function has adequate authority and resources.
Overseeing risk management efforts and policies.
Option A (Incorrect): The Board should be actively involved, not just informed when required.
Option B (Incorrect): The compliance function must have direct access to the Board to ensure independent oversight.
Option C (Incorrect): The Board must be involved in policy establishment for effective compliance management.
Why Board Oversight is Critical:
Ensures effective AML governance and accountability.
Reduces regulatory risks and potential financial penalties.
Strengthens financial institution stability and reputation.
Best Practices for Board Oversight in AML Governance:
Establish independent compliance reporting lines to the Board.
Ensure regular AML risk assessments and policy reviews.
Mandate regular AML training for senior management.
Reference:
Basel Committee on Banking Supervision (BCBS) Corporate Governance Principles FATF Recommendation 18 (Internal Controls and Board Oversight) Wolfsberg Group AML Risk Management Framework

According to the FATF Recommendation 12, financial institutions should take reasonable measures to determine whether the beneficiaries of a life insurance policy and/or, where required, the beneficial owner of the beneficiary are politically exposed persons. This should occur at the latest at the time of the payout1. The purpose of this requirement is to prevent the abuse of life insurance products for money laundering or terrorist financing by PEPs or their associates. Therefore, the best way to mitigate the risk of adding a beneficiary to a life insurance policy for a foreign PEP is to perform due diligence on the beneficiary, such as verifying their identity, relationship with the PEP, and source of funds2.
The other options are not correct because they either do not comply with the FATF standards, or do not adequately address the risk of adding a beneficiary to a life insurance policy for a foreign PEP. Determining the source of wealth and source of funds is a measure that should be applied to the PEP as the customer, not the beneficiary, as partof the enhanced due diligence process2. Declining the request if the beneficiary is a foreign PEP may not be feasible or proportional, as not all foreign PEPs are involved in money laundering or terrorist financing, and some may have legitimate reasons to add a beneficiary to their life insurance policy.
Declining the request to add a beneficiary due to increased risk may also not be feasible or proportional, as it may violate the contractual rights of the PEP as the customer, and may not be necessary if the due diligence on the beneficiary does not reveal any red flags or suspicions.: https://complyadvantage.com/insights/peps-life-insurance/
https://www.cfatf-gafic.org/index.php/documents/fatf-40r/378-fatf-recommendation-12-politically-exposed- persons