CCM Regulatory Compliance & Governance 3 — Questions and Answers
Question 1: Under the Uniform Commercial Code (UCC) Article 9, a secured creditor's priority over other creditors is generally established by:
- The date the security agreement was signed
- The date and time of perfection, typically by filing a financing statement (Correct answer)
- The amount of the secured debt
- The creditworthiness of the debtor at the time of the loan
Correct answer: The date and time of perfection, typically by filing a financing statement
Under UCC Article 9, priority among secured creditors is generally determined by the order of perfection, most commonly through the filing of a UCC-1 financing statement.
Question 2: Which of the following actions would trigger a mandatory SAR (Suspicious Activity Report) filing obligation for a financial institution?
- A customer makes a cash deposit of exactly $10,000
- A customer disputes a charge on their account
- A transaction appears to involve funds from illegal activity with no lawful explanation (Correct answer)
- A customer closes an account after receiving a loan denial
Correct answer: A transaction appears to involve funds from illegal activity with no lawful explanation
SARs must be filed when a financial institution knows, suspects, or has reason to suspect that a transaction involves funds from illegal activity or is designed to evade reporting requirements.
Question 3: The Equal Credit Opportunity Act (ECOA) requires creditors to notify applicants of adverse action within how many days of receiving a completed credit application?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
ECOA requires creditors to notify applicants of adverse action within 30 days of receiving a completed credit application.
Question 4: A credit manager applies stricter credit terms to applicants from a specific zip code that correlates with minority neighborhoods. This practice is known as:
- Credit tiering
- Risk-based pricing
- Redlining (Correct answer)
- Adverse selection
Correct answer: Redlining
Redlining refers to the discriminatory practice of denying or limiting financial services to residents of specific areas based on racial or ethnic composition, which violates ECOA and the Fair Housing Act.
Question 5: Under Basel III capital requirements, what is the minimum Common Equity Tier 1 (CET1) capital ratio that banks must maintain?
- 2.0%
- 4.5% (Correct answer)
- 6.0%
- 8.0%
Correct answer: 4.5%
Basel III requires banks to maintain a minimum CET1 capital ratio of 4.5% of risk-weighted assets.
Question 6: Which of the following best describes the purpose of a credit policy's 'Know Your Customer' (KYC) requirement?
- To assess the profitability of customer relationships
- To verify customer identity and assess money laundering and fraud risks (Correct answer)
- To determine appropriate credit limits based on purchase history
- To comply with SOX internal control requirements
Correct answer: To verify customer identity and assess money laundering and fraud risks
KYC requirements are designed to verify customer identities, understand the nature of their business, and assess risks related to money laundering, terrorist financing, and fraud.
Question 7: When a publicly traded company's credit department discovers a material weakness in internal controls over financial reporting, what is required under SOX?
- Disclose the weakness in the next annual proxy statement
- Report it internally to the compliance department only
- Disclose it in the annual report (10-K) and management must assess its impact (Correct answer)
- Notify the SEC within 48 hours via Form 8-K
Correct answer: Disclose it in the annual report (10-K) and management must assess its impact
SOX Section 404 requires management to assess and disclose material weaknesses in internal controls over financial reporting in the company's annual 10-K filing.
CCM Regulatory Compliance & Governance 3
Under the Uniform Commercial Code (UCC) Article 9, a secured creditor's priority over other creditors is generally established by: