FATF and CAMS 6th Edition highlight certain third-party activities as red flags for money laundering in the life insurance sector:
* Payments are regularly received from third parties that have no apparent relationship with the policy holder (C):"Red flags include payments made by third parties, especially where there is no apparent connection between the third party and the policy holder."(FATF, Risk-Based Approach for Life Insurance Sector, Section IV: Red Flags; CAMS 6th Edition, Customer Due Diligence for Life Insurance)
* A customer names an apparently unrelated third party as a beneficiary (D):"Another warning sign is when beneficiaries have no apparent relation to the policyholder."(FATF, Ibid; CAMS 6th Edition, Life Insurance ML/TF Red Flags) Incorrect Options:
* A: Consulting an attorney is not, by itself, a red flag.
* B: Policy transfer may warrant review but is not specifically a red flag for third-party involvement.
References:
CAMS 6th Edition, Life Insurance ML/TF Risks
FATF, Guidance for a Risk-Based Approach for the Life Insurance Sector (October 2018)

The first step in designing an effective controls framework using a risk-based approach is conducting a risk assessment. This identifies and evaluates inherent risks, providing the basis for determining which controls are necessary and how they should be prioritized.

In anEnterprise-Wide Risk Assessment (EWRA),residual riskis the level of risk that remains after applying mitigating controls to theinherent risk(the risk present before controls are applied).
In this scenario, theinherent risk is highdue to the nature of private banking-high net worth clients,cross- border transactions,complex ownership structures, andhigh-value financial products. However, the institution has implementedrobust CDD and EDD, as well asadvanced transaction monitoring systems.
According to the CAMS Study Guide - 6th Edition, wheneffective and properly implemented controlsare in place, they cansignificantly reducethe residual risk-even in high-risk business areas like private banking.
However, no control framework caneliminate all riskentirely.
* Option Ais correct: Controls can significantly reduce the residual risk when strong, effective systems and procedures are in place.
* Option Bis partially true but suggests inadequacy, which is not indicated here.
* Option Cincorrectly assumes residual risk cannot be lowered even with controls.
* Option Dis incorrect because residual riskcannot be eliminated entirely.
Reference: ACAMS CAMS Study Guide - 6th Edition, Chapter:Enterprise-Wide Risk Assessment (EWRA)- Section:Inherent Risk vs. Residual Risk and the Role of Controls

A risk-based approach prioritizes allocating more resources to higher-risk areas and regularly reassessing risks to ensure resource allocation remains aligned with evolving threats and vulnerabilities. This maximizes the effectiveness of the AFC program.