Compliance, Risk and Regulations Flashcards

Which Basel III liquidity standard requires banks to hold enough high-quality liquid assets to survive a 30-day stress scenario?

Answer: Liquidity Coverage Ratio (LCR)

The LCR requires banks to maintain a stock of unencumbered high-quality liquid assets sufficient to cover net cash outflows over a 30-day stress period.

When a bank structures transactions to avoid CTR reporting thresholds, this practice is known as:

Answer: Structuring (smurfing)

Structuring, also called smurfing, involves deliberately breaking up large cash transactions into smaller amounts to avoid BSA reporting requirements, which is itself a federal crime.

A bank's risk appetite statement primarily serves what purpose in enterprise risk management?

Answer: Defining the amount and type of risk the bank is willing to accept in pursuit of its objectives

A risk appetite statement articulates the level and types of risk the board and management are willing to accept, guiding risk-taking across the organization.

Under the Dodd-Frank Act, which entity has primary supervisory authority over nonbank financial companies designated as systemically important?

Answer: Federal Reserve Board

Dodd-Frank grants the Federal Reserve Board supervisory and regulatory authority over nonbank financial companies designated as systemically important by FSOC.

Which of the following is considered a 'red flag' indicator of potential trade-based money laundering (TBML)?

Answer: Significant over- or under-invoicing of goods compared to market value

TBML often involves mispriced trade invoices—either over- or under-valued—to transfer value across borders while disguising it as legitimate trade.

A bank's Chief Compliance Officer (CCO) reports directly to the board of directors. This structure primarily ensures:

Answer: Independence of the compliance function from business line pressures

Direct board reporting preserves the CCO's independence, preventing business line managers from suppressing compliance concerns to meet revenue targets.

Which examination procedure involves regulators testing a sample of loan files against stated underwriting criteria to assess credit risk management?

Answer: Transaction testing

Transaction testing is a supervisory examination technique where examiners review individual loan files to verify adherence to the bank's underwriting policies and identify credit quality issues.