Compliance, Risk and Regulations Flashcards
7 cards from real CBP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Compliance, Risk and Regulations flashcards as text
Which U.S. law requires financial institutions to verify the identity of beneficial owners of legal entity customers?
Answer: FinCEN Customer Due Diligence Rule
FinCEN's CDD Rule, effective 2018, requires banks to identify and verify beneficial owners holding 25% or more of a legal entity.
What is 'operational risk' as defined under Basel II?
Answer: Risk of loss from inadequate internal processes, people, systems, or external events
Basel II defines operational risk as the risk of loss from failed internal processes, human error, system failures, or external events.
The Community Reinvestment Act (CRA) was enacted primarily to address which issue?
Answer: Discriminatory lending practices that denied credit to low-income communities
The CRA was enacted in 1977 to prevent redlining and ensure banks meet credit needs of all communities, including low- and moderate-income areas.
Under the Volcker Rule, which activity is generally prohibited for banking entities?
Answer: Proprietary trading of securities for the bank's own profit
The Volcker Rule prohibits banks from engaging in short-term proprietary trading of securities, derivatives, and certain other financial instruments for their own account.
What is the primary purpose of a bank's Internal Capital Adequacy Assessment Process (ICAAP)?
Answer: To ensure the bank holds capital commensurate with its full risk profile
ICAAP requires banks to assess all material risks and maintain adequate capital beyond minimum regulatory requirements.
Which risk is primarily associated with a bank holding long-term fixed-rate loans funded by short-term deposits?
Answer: Interest rate risk
Holding long-term fixed-rate assets funded by short-term liabilities creates interest rate risk, as rising rates increase funding costs while asset yields remain fixed.
A compliance officer receives a subpoena for customer records from a foreign government. What is the bank's most appropriate first step?
Answer: Consult legal counsel and review applicable law and treaties
Banks must consult legal counsel to determine obligations under U.S. law, privacy regulations, and relevant international treaties before responding to foreign subpoenas.