Banking Ethics in Banking 2 — Questions and Answers
Question 1: A bank employee discovers that a longtime client is structuring cash deposits just below the $10,000 reporting threshold. What should the employee do?
- Ignore it since each transaction is under the limit
- File a Suspicious Activity Report (SAR) with FinCEN (Correct answer)
- Warn the client to stop the behavior
- Increase the client's deposit limit to simplify transactions
Correct answer: File a Suspicious Activity Report (SAR) with FinCEN
Structuring deposits to evade CTR requirements is illegal, and bank employees must file a SAR when they suspect such activity.
Question 2: Under the CFA Institute Code of Ethics, which behavior best demonstrates the duty of loyalty to clients?
- Recommending high-commission products that meet client needs
- Placing client interests ahead of personal gain in all transactions (Correct answer)
- Disclosing conflicts of interest only when directly asked
- Sharing client portfolio details with a colleague for a second opinion without consent
Correct answer: Placing client interests ahead of personal gain in all transactions
The duty of loyalty requires placing client interests above personal benefit and institutional interests at all times.
Question 3: A bank loan officer approves a mortgage for a friend with a weaker credit profile than required, without disclosing the relationship. This is an example of:
- Reasonable accommodation
- A conflict of interest (Correct answer)
- Community reinvestment
- Fiduciary override
Correct answer: A conflict of interest
Approving a loan for a personal acquaintance while hiding the relationship is a textbook conflict of interest that violates ethical and regulatory standards.
Question 4: Which federal law primarily governs anti-money laundering (AML) compliance obligations for U.S. banks?
- Dodd-Frank Act
- Bank Secrecy Act (BSA) (Correct answer)
- Community Reinvestment Act
- Gramm-Leach-Bliley Act
Correct answer: Bank Secrecy Act (BSA)
The Bank Secrecy Act requires financial institutions to maintain records and file reports that help detect and prevent money laundering.
Question 5: What does 'know your customer' (KYC) compliance primarily aim to prevent?
- Excessive fee charges to new clients
- Money laundering, fraud, and terrorist financing (Correct answer)
- Overdraft abuse by retail clients
- Unauthorized wire transfers within the bank
Correct answer: Money laundering, fraud, and terrorist financing
KYC procedures verify client identities and assess risk to prevent the financial system from being used for illicit activities.
Question 6: A financial advisor recommends an annuity to a retired client primarily because it pays the highest commission. This violates which ethical principle?
- Transparency
- Suitability (Correct answer)
- Confidentiality
- Competence
Correct answer: Suitability
The suitability standard requires that recommendations be based on the client's needs and risk profile, not the advisor's compensation.
Question 7: Which of the following actions would be considered a violation of customer confidentiality in banking?
- Sharing account data with a government agency pursuant to a valid subpoena
- Disclosing client balance information to a marketing firm without consent (Correct answer)
- Reporting suspicious transactions to FinCEN
- Providing account statements to the account holder upon request
Correct answer: Disclosing client balance information to a marketing firm without consent
Disclosing customer financial data to third parties for marketing without explicit consent violates privacy laws and banking ethics.
Banking Ethics in Banking 2
A bank employee discovers that a longtime client is structuring cash deposits just below the $10,000 reporting threshold.
What should the employee do?