APRP Regulatory Compliance 5 — Questions and Answers
Question 1: Under the Gramm-Leach-Bliley Act (GLBA), payment companies that qualify as financial institutions must provide customers with:
- Annual interest rate disclosures
- Privacy notices explaining information sharing practices (Correct answer)
- Monthly account statements
- Quarterly risk assessments
Correct answer: Privacy notices explaining information sharing practices
GLBA requires financial institutions to provide customers with clear privacy notices describing how personal financial information is collected and shared.
Question 2: Which international standard framework specifically addresses AML controls and is used as a global benchmark by regulators?
- ISO 27001
- FATF Recommendations (Correct answer)
- Basel III Accords
- SOC 2 Type II
Correct answer: FATF Recommendations
The Financial Action Task Force (FATF) Recommendations are the internationally recognized standards for combating money laundering and terrorist financing.
Question 3: A prepaid card issuer is subject to which regulation's requirements regarding fee disclosures and error resolution for consumer prepaid accounts?
- Regulation CC
- Regulation DD
- Regulation E (Prepaid Accounts Rule) (Correct answer)
- Regulation Z
Correct answer: Regulation E (Prepaid Accounts Rule)
The CFPB's Prepaid Accounts Rule, an amendment to Regulation E, requires fee disclosures, error resolution rights, and access to account information for prepaid cards.
Question 4: In payments compliance, what is a 'de-risking' strategy and why is it controversial?
- Encrypting all stored card data to reduce breach risk
- Terminating relationships with entire categories of higher-risk customers to avoid compliance burden (Correct answer)
- Using risk-scoring models to price transactions dynamically
- Outsourcing compliance functions to reduce internal risk
Correct answer: Terminating relationships with entire categories of higher-risk customers to avoid compliance burden
De-risking involves exiting entire customer segments (e.g., money service businesses) to avoid AML compliance costs, which regulators criticize for excluding legitimate customers from financial services.
Question 5: Which act extended BSA requirements to money services businesses (MSBs), including certain payment processors and money transmitters?
- Dodd-Frank Act
- USA PATRIOT Act (Correct answer)
- Fair and Accurate Credit Transactions Act
- Electronic Fund Transfer Act
Correct answer: USA PATRIOT Act
The USA PATRIOT Act of 2001 significantly expanded BSA requirements, bringing MSBs such as money transmitters under full AML program obligations.
Question 6: What is the significance of 'Safe Harbor' provisions in the context of SAR filings by financial institutions?
- They cap the maximum civil penalty for late SAR filings
- They protect institutions and their employees from civil liability for filing SARs in good faith (Correct answer)
- They exempt small institutions from SAR filing requirements
- They allow institutions to share SAR information with other banks freely
Correct answer: They protect institutions and their employees from civil liability for filing SARs in good faith
Safe harbor provisions under the BSA protect financial institutions and their employees from civil liability when they file SARs in good faith.
Question 7: A payment company operating across multiple U.S. states must obtain money transmitter licenses in each state where it operates because of which regulatory structure?
- Federal preemption under the National Bank Act
- State-by-state licensing under the patchwork of state money transmission laws (Correct answer)
- CFPB national licensing requirements
- Card network rules requiring state registration
Correct answer: State-by-state licensing under the patchwork of state money transmission laws
The U.S. lacks a unified federal money transmitter license, so companies must obtain separate licenses from each state that requires them, creating a compliance patchwork.
APRP Regulatory Compliance 5
Under the Gramm-Leach-Bliley Act (GLBA), payment companies that qualify as financial institutions must provide customers with: