Banking Regulatory Compliance 3 — Questions and Answers
Question 1: What is 'structuring' in the context of banking compliance?
- Organizing a bank's capital into tiers
- Breaking up large cash transactions into smaller amounts to avoid CTR reporting requirements (Correct answer)
- Creating structured financial products like CDOs
- Dividing a loan portfolio into tranches
Correct answer: Breaking up large cash transactions into smaller amounts to avoid CTR reporting requirements
Structuring (also called 'smurfing') is the illegal practice of breaking up cash transactions to stay below the $10,000 CTR reporting threshold.
Question 2: Which regulation governs the disclosure requirements for deposit accounts and requires banks to disclose interest rates and fees?
- Regulation CC
- Regulation DD (Correct answer)
- Regulation E
- Regulation GG
Correct answer: Regulation DD
Regulation DD implements the Truth in Savings Act and requires depository institutions to disclose the terms and conditions of deposit accounts, including interest rates and fees.
Question 3: Under the Equal Credit Opportunity Act (ECOA), which of the following is NOT a prohibited basis for credit discrimination?
- Race
- Religion
- Credit score (Correct answer)
- National origin
Correct answer: Credit score
ECOA prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance — credit score is a legitimate underwriting factor.
Question 4: What is the purpose of a Suspicious Activity Report (SAR)?
- To report large cash deposits over $10,000
- To alert regulators about potentially illegal financial activity (Correct answer)
- To document customer complaints about bank services
- To report overdraft activity on customer accounts
Correct answer: To alert regulators about potentially illegal financial activity
SARs are filed by financial institutions to report transactions that appear unusual or potentially related to criminal activity such as money laundering or fraud.
Question 5: The Volcker Rule, part of Dodd-Frank, primarily restricts banks from doing what?
- Accepting deposits from foreign nationals
- Engaging in proprietary trading and owning hedge funds or private equity funds (Correct answer)
- Issuing credit cards with variable interest rates
- Offering overdraft protection services
Correct answer: Engaging in proprietary trading and owning hedge funds or private equity funds
The Volcker Rule prohibits banks from proprietary trading (trading for their own profit) and from owning, investing in, or sponsoring hedge funds or private equity funds.
Question 6: Under Regulation E, consumers must report unauthorized electronic fund transfers within how many days to limit liability to $50?
- 2 business days (Correct answer)
- 10 business days
- 30 days
- 60 days
Correct answer: 2 business days
Under Regulation E, a consumer's liability for unauthorized EFTs is limited to $50 if they notify the bank within 2 business days of learning of the loss or theft.
Question 7: Which act requires financial institutions to provide customers with privacy notices and the option to opt out of sharing information with non-affiliated third parties?
- Gramm-Leach-Bliley Act (GLBA) (Correct answer)
- Fair Credit Reporting Act (FCRA)
- Electronic Fund Transfer Act (EFTA)
- Right to Financial Privacy Act (RFPA)
Correct answer: Gramm-Leach-Bliley Act (GLBA)
The GLBA requires financial institutions to explain their information-sharing practices and give customers the right to opt out of having their information shared with non-affiliated third parties.
Banking Regulatory Compliance 3
What is 'structuring' in the context of banking compliance?