APRP Regulatory Environment 4 — Questions and Answers
Question 1: Under FinCEN's Customer Due Diligence (CDD) Rule, financial institutions are required to identify and verify the identity of beneficial owners who own what minimum percentage of a legal entity customer?
- 10%
- 15%
- 25% (Correct answer)
- 51%
Correct answer: 25%
FinCEN's CDD Rule requires financial institutions to collect and verify the identity of any individual who owns 25% or more of an equity interest in a legal entity customer.
Question 2: Which U.S. federal regulation specifically addresses the rights and responsibilities of consumers using credit cards, including billing disputes?
- Regulation E
- Regulation Z (Correct answer)
- Regulation CC
- Regulation J
Correct answer: Regulation Z
Regulation Z (implementing the Truth in Lending Act) governs credit card disclosures, billing error resolution, and consumer rights for credit card transactions.
Question 3: A payment processor discovers that one of its merchant clients is operating an undisclosed gambling website. Under card network rules and regulatory expectations, the processor's primary obligation is to:
- Issue a chargeback for all disputed gambling transactions
- Terminate the merchant relationship and report suspicious activity if warranted (Correct answer)
- Reduce the merchant's interchange rate due to elevated risk
- Notify the acquiring bank's card brand relationship manager only
Correct answer: Terminate the merchant relationship and report suspicious activity if warranted
Processors must terminate relationships with merchants engaged in undisclosed illegal or prohibited activity and may need to file a SAR if the activity constitutes money laundering or fraud.
Question 4: The Right to Financial Privacy Act (RFPA) restricts the ability of federal government authorities to access a customer's financial records without which of the following?
- A court order, subpoena, formal written request, or customer consent (Correct answer)
- A simple written request from any federal law enforcement officer
- Prior notification to the financial institution's board of directors
- Approval from the Secretary of the Treasury
Correct answer: A court order, subpoena, formal written request, or customer consent
RFPA requires that the government obtain a customer's consent, a court order, a formal written request, or a subpoena before accessing their financial records from a financial institution.
Question 5: Regulation CC (Expedited Funds Availability Act) governs which specific aspect of payment processing?
- The timeframe within which banks must make deposited funds available to customers (Correct answer)
- The maximum interchange fee charged for debit card transactions
- The requirements for filing SARs on check fraud schemes
- The liability allocation for unauthorized ACH transactions
Correct answer: The timeframe within which banks must make deposited funds available to customers
Regulation CC sets the maximum hold periods for deposited checks and establishes when financial institutions must make funds available to consumers.
Question 6: Which of the following best describes 'structuring' as it relates to BSA compliance?
- Organizing payment transactions into specific risk tiers for regulatory reporting
- Breaking up transactions to evade currency transaction reporting requirements (Correct answer)
- Structuring AML programs into three lines of defense within a financial institution
- Categorizing ACH entries by Standard Entry Class (SEC) codes
Correct answer: Breaking up transactions to evade currency transaction reporting requirements
Structuring (also called 'smurfing') is the illegal practice of breaking large cash transactions into smaller amounts to avoid triggering the $10,000 CTR filing requirement.
Question 7: Under the Durbin Amendment (Dodd-Frank Act Section 1075), the Federal Reserve's interchange fee cap for debit card transactions applies to issuers with assets of at least:
- $1 billion
- $5 billion
- $10 billion (Correct answer)
- $50 billion
Correct answer: $10 billion
The Durbin Amendment's interchange fee cap (approximately $0.21 + 0.05% per transaction) applies to debit card issuers with assets of $10 billion or more.
APRP Regulatory Environment 4
Under FinCEN's Customer Due Diligence (CDD) Rule, financial institutions are required to identify and verify the identity of beneficial owners who own what minimum percentage of a legal entity customer?