A Model Risk Committee is responsible for assisting the board of directors in fulfilling its obligations in respect to all the models used by the financial institution, ensuring the integrity of the information about all the models stored in the model inventory, ensuring the composition of the committee membership is appropriate, providing reports to the risk management committee, the board of directors and senior management on the status of model risk management.

The status of model risk management is provided to the risk management committee, the board of directors, senior management and the audit committee.

“Basel Core Principles for Effective Banking Supervision (bcbs230) state that “Where banks use models to measure components of risk, the supervisor determines that: banks comply with supervisory standards on their use, banks’ boards and senior management understand the limitations and uncertainties relating to the output of the models and the risk inherent in their use, they shall perform regular and independent validation and testing of the models and that the supervisor assesses whether the model outputs appear reasonable as a reflection of the risks assumed.”

It controls the training staff in the intricacies of international sanctions.

The sanctions and watch lists fall under two categories are black and white lists.

It must ensure that they use the most current list of sanctioned entities and execute the screening process promptly after each new version of the list is made available.

These are the names that should be screened periodically include employees, consultants and third-party service providers such as vendors, landlords, and tenants of properties owned by the financial institution.

Examples of correct funding flows are from the point of origin to a terrorist organization, from the organization to a specific operation, and to the individual operative.

The Low Inherent Risks is no exposure to high-risk jurisdictions, normal retail domestic products such as checking and savings accounts, stable domestic customer base without significant growth and face to face contact at account opening for new customers.

Terrorist funding has the following characteristics, funding requirements, funding sources, and funding mechanisms.

Some of the elements for Anti-Bribery and Corruption (ABC) program are governance, firm-wide policy, a controlled environment, and customer-related corruption risks

In confirming the validity of the typology thresholds and reduce the volume of false-positive alerts, the testing has to establish that the number of false negatives is not significant.

The committee is responsible for managing the global standards and guidelines for the transaction monitoring component of the AML/CTF Compliance program of the financial institution. It ensures that the transaction monitoring program is globally consistent, effective and sustainable as it regards typology, maintenance and tuning.

For Risk Management, a policy is a high-level statement of intent defining the scope of coverage, identifying areas that are included and those which are explicitly excluded which are governed by the risk appetite statement.

The record retention requirements includes currency transaction reports, suspicious activity reports, wire transfer records, PATRIOT Act Section 314(a) and 314(b) requests, special measures, national security letters, and exempt person designation.

Transaction monitoring can include the number of alerts generated analyzed by front line units, number of alerts raised to case analyzed by front line units, the average time to review each alert and Backlog of alert review.

Combination risk includes client risk, country risk, and product risk.

It states that countries should take measures to prevent the misuse of legal persons for money laundering or terrorist financing. It should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities.

Some of the high inherent risks are crossing the border or international wire transfers, private banking services, and trade finance.

The risk governance framework should cover all the risks relevant to the financial institution including those related to credit, interest, price, operational, liquidity, strategic, reputational and compliance.

AML/CTF committee has the following principal recurring responsibilities such as Feedback loop management, AML/CTF policy and related policies and procedures and approving any changes and manages the charter for AML/CTF committee and the charters of the subcommittee.

A strategic plan will set forth the future direction of the financial institution in all aspects and appropriately consider the risk implications of each initiative. The initiative should be designed ultimately to either increase or maintain existing revenue directly or indirectly.

Technology risk is the potential for technology failures to disrupt the business such as information security incidents or service outages while cybersecurity risk is exposure to financial loss, disruption or damage to an organization as a result of a failure of its information technology systems.

An aide to be effective and consistent across the enterprise is for risk management to create a standardized methodology.

The 5th Pillar or The new Customer Due Diligence rule means that information is required to be collected from certain legal entities.

Interest rate risk
is solely the danger that the value of investments will suffer as the result of a change in interest rates.

It can be through the request of the supervisory agency or because of a self-identified issue. The main reason for identification of any transactions or names that may have been missed and should have been reported. And possibly, some issue with a typology or filter.

Universal Beneficial Ownership (UBO) means that the “natural persons” behind the legal entity must be identified including the person whereas benefits is being operated. In 2015, the Panama Papers were released. The 11.5 million documents revealed that Mossack Fonseca, had created over 214,000 offshore entities for their clients during the previous forty years.

A financial institution needs to set policies which are the principles and rules designed to establish the parameters that the enterprise has to respect while reaching the long-term business goals as defined in the strategic plan. These policies are approved by the board of directors and reviewed annually. Subsequently, these are high-level statements of principle and do not require frequent changes in wording. There must be a formal change management process in place that ensures that all changes are appropriately authorized, published and included in the relevant training.