Regulatory Framework & Requirements Flashcards

Under the EU's Markets in Crypto-Assets (MiCA) regulation, which category of crypto-asset issuers is subject to the most stringent ongoing own funds requirements, requiring maintenance of at least €350,000 or 2% of the average reserve assets?

Answer: E-money token (EMT) issuers classified as 'significant'

Under MiCA Article 58, significant e-money token issuers face the most stringent own funds requirements: the higher of €350,000 or 2% of the average amount of reserve assets. This is because significant EMTs pose systemic risks comparable to traditional e-money and payment systems, warranting stricter capital buffers than ARTs or utility tokens.

A compliance manager at a U.S. bank discovers that a model used for BSA/AML transaction monitoring has a documented 'challenger model' that was validated 18 months ago but never promoted to production. Under OCC SR 11-7 (Model Risk Management), what is the PRIMARY compliance concern?

Answer: The failure to evaluate and document why the champion model was retained over the challenger constitutes a gap in model governance

SR 11-7 requires rigorous model governance that includes ongoing monitoring and documented rationale for model selection decisions. Maintaining a challenger without documenting why it was not promoted — especially over 18 months — indicates a gap in the governance process. The regulator's concern is not merely re-validation timing, but the absence of a defensible, documented decision framework comparing champion and challenger performance.

Which provision of the Dodd-Frank Act created the 'living will' (resolution plan) requirement, and which threshold correctly triggers the initial mandatory filing for foreign banking organizations (FBOs) operating in the United States?

Answer: Section 165; FBOs with $100 billion or more in total global consolidated assets

Dodd-Frank Section 165 established resolution plan requirements. Following the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, the threshold for FBOs was raised to $100 billion in total global consolidated assets for mandatory living will filings with both the Federal Reserve and FDIC. The $50 billion threshold applied prior to the 2018 amendment.

Under FATF Recommendation 12 on Politically Exposed Persons (PEPs), which scenario correctly describes the treatment of a 'domestic PEP' who left a senior government position 14 months ago, where the jurisdiction applies the minimum FATF standard?

Answer: Enhanced due diligence must continue until the institution determines, through risk-based assessment, that the person no longer poses elevated risk — with no fixed expiry period prescribed by FATF

FATF Recommendation 12 explicitly states there is no fixed time limit after which PEP status automatically lapses. Institutions must apply a risk-based approach to determine when the individual no longer poses elevated risk. The common misconception is that a fixed 12- or 18-month 'cooling off' period applies — FATF prescribes no such automatic declassification; continued EDD is required until a documented risk assessment supports downgrading.

A compliance officer at a derivatives dealer is reviewing obligations under EMIR Refit (EU 2019/834). A non-financial counterparty (NFC) has just crossed the clearing threshold in one asset class (interest rate derivatives) but remains below it in all others. What is the CORRECT consequence under EMIR Refit's revised NFC+ rules?

Answer: The NFC becomes subject to clearing obligations across all asset classes covered by EMIR, not just the one in which the threshold was breached

Under EMIR Refit, once an NFC exceeds the clearing threshold in any single asset class, it becomes an NFC+ and is subject to the clearing obligation for ALL asset classes in which EMIR mandates clearing — not just the asset class where the threshold was breached. This 'all-or-nothing' asset class trigger is a critical distinction from how some practitioners incorrectly assume a class-specific obligation applies.

Under the U.S. Corporate Transparency Act (CTA) and FinCEN's Beneficial Ownership Information (BOI) reporting rules effective January 2024, which entity type is EXEMPT from BOI reporting despite being a domestic entity formed by a filing with a state secretary of state?

Answer: A pooled investment vehicle operated by an investment adviser registered with the SEC

FinCEN's BOI rules under the CTA include 23 specific exemption categories. Pooled investment vehicles that are operated or advised by SEC-registered investment advisers (or certain other regulated entities) qualify as exempt under the 'pooled investment vehicle' exemption. Single-member LLCs below revenue/employee thresholds do not automatically qualify — the 'large operating company' exemption requires 20+ full-time U.S. employees, $5M+ in gross receipts, and a physical U.S. office. The subsidiary exemption applies only when the parent itself is exempt, not merely a large company.