CBA Regulatory Compliance Auditing 3 — Questions and Answers
Question 1: Which risk-based approach element requires banks to assess the specific money laundering risks posed by their products, services, customers, and geographic locations?
- Customer Identification Program
- Suspicious Activity Monitoring
- Risk Assessment (Correct answer)
- Enhanced Due Diligence
Correct answer: Risk Assessment
A BSA/AML Risk Assessment evaluates the institution's inherent risk exposure across products, customers, services, and geographies to drive compliance program design.
Question 2: Under FinCEN's Customer Due Diligence (CDD) Rule, what is required when a legal entity customer opens a new account?
- Annual credit review of the entity
- Collection of beneficial ownership information for individuals owning 25% or more (Correct answer)
- Verification of all employees of the entity
- Filing a CTR for the initial deposit
Correct answer: Collection of beneficial ownership information for individuals owning 25% or more
FinCEN's CDD Rule requires banks to identify and verify the identity of individuals who own 25% or more of a legal entity customer.
Question 3: An auditor is reviewing a bank's Suspicious Activity Report (SAR) process. Which finding is MOST problematic?
- SARs filed within 30 days of detection
- SAR filing decisions documented in a SAR committee log
- Staff notifying customers that a SAR was filed on their account (Correct answer)
- Using automated transaction monitoring to identify alerts
Correct answer: Staff notifying customers that a SAR was filed on their account
Tipping off customers that a SAR has been filed is prohibited by federal law and could result in criminal liability for bank employees.
Question 4: Regulation Z's right of rescission applies to which type of consumer credit transaction?
- Purchase money mortgages on primary residences
- Auto loans secured by the vehicle
- Non-purchase money mortgages using the primary residence as collateral (Correct answer)
- Credit card cash advances
Correct answer: Non-purchase money mortgages using the primary residence as collateral
The right of rescission under Regulation Z applies to non-purchase money transactions secured by the consumer's principal dwelling, giving borrowers 3 business days to cancel.
Question 5: Which of the following best describes 'layering' in the context of money laundering?
- Creating multiple layers of management in the compliance department
- Separating illicit funds from their source through complex financial transactions (Correct answer)
- Integrating laundered money back into the legitimate economy
- Placing illegal cash into the banking system
Correct answer: Separating illicit funds from their source through complex financial transactions
Layering is the second stage of money laundering, involving complex financial transactions designed to obscure the audit trail and distance funds from their illegal source.
Question 6: When reviewing a bank's fair lending compliance, which analytical technique compares the treatment of similarly situated applicants across different demographic groups?
- Regression analysis of loan volumes
- Comparative file review (Correct answer)
- Portfolio stratification testing
- Stress testing of credit models
Correct answer: Comparative file review
Comparative file review examines loan files for similarly qualified applicants to identify disparate treatment based on protected class characteristics.
Question 7: Under the Dodd-Frank Act, which agency has primary rulemaking authority for consumer financial protection regulations affecting large banks?
- OCC
- FDIC
- CFPB (Correct answer)
- Federal Reserve
Correct answer: CFPB
The Consumer Financial Protection Bureau (CFPB) was created by Dodd-Frank and holds primary rulemaking authority for consumer financial protection laws applicable to large banks.
CBA Regulatory Compliance Auditing 3
Which risk-based approach element requires banks to assess the specific money laundering risks posed by their products, services, customers, and geographic locations?