CII R01 Financial Crime Prevention 1 — Questions and Answers
Question 1: What is the primary UK legislation for preventing money laundering?
- Financial Services Act 2012
- Proceeds of Crime Act 2002 and Money Laundering Regulations 2017 (Correct answer)
- Companies Act 2006
- Consumer Credit Act 1974
Correct answer: Proceeds of Crime Act 2002 and Money Laundering Regulations 2017
The Proceeds of Crime Act 2002 (POCA) creates the principal money laundering offences, while the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) set out the regulatory framework for prevention.
Question 2: What are the three stages of money laundering?
- Collection, distribution, investment
- Placement, layering, integration (Correct answer)
- Deposit, transfer, withdrawal
- Acquisition, conversion, disposal
Correct answer: Placement, layering, integration
The three stages of money laundering are: placement (introducing criminal proceeds into the financial system), layering (moving money through complex transactions to disguise its origin), and integration (making the money appear legitimate).
Question 3: What is Customer Due Diligence (CDD)?
- A courtesy check on customer satisfaction
- The process of identifying and verifying customers' identities and understanding the nature of their business (Correct answer)
- A credit check performed before lending
- An annual review of customer account balances
Correct answer: The process of identifying and verifying customers' identities and understanding the nature of their business
CDD involves identifying the customer, verifying their identity using reliable and independent sources, and understanding the nature and purpose of the business relationship. It is a fundamental AML requirement.
Question 4: When is Enhanced Due Diligence (EDD) required?
- For all new customers
- When there is a higher risk of money laundering, such as with politically exposed persons or complex transactions (Correct answer)
- Only for customers with deposits over £1 million
- Only for business customers
Correct answer: When there is a higher risk of money laundering, such as with politically exposed persons or complex transactions
EDD is required in situations presenting a higher risk of money laundering or terrorist financing, including dealing with PEPs, correspondent banking relationships, complex or unusual transactions, and customers from high-risk jurisdictions.
Question 5: What is a Suspicious Activity Report (SAR)?
- An internal performance review
- A report made to the National Crime Agency when there is knowledge or suspicion of money laundering (Correct answer)
- A report to the FCA about market movements
- A customer complaint report
Correct answer: A report made to the National Crime Agency when there is knowledge or suspicion of money laundering
A SAR must be submitted to the UK Financial Intelligence Unit at the National Crime Agency (NCA) when a person knows or suspects, or has reasonable grounds to suspect, that money laundering or terrorist financing is taking place.
Question 6: What is 'tipping off' in the context of anti-money laundering?
- Providing financial tips to customers
- Informing a person that a SAR has been made or that an investigation is being carried out, which is a criminal offence (Correct answer)
- Reporting suspicious activity to the police
- Sharing market tips with colleagues
Correct answer: Informing a person that a SAR has been made or that an investigation is being carried out, which is a criminal offence
Tipping off is a criminal offence under POCA that occurs when a person discloses that a SAR has been made or that a money laundering investigation is being or may be conducted, if that disclosure is likely to prejudice the investigation.
CII R01 Financial Crime Prevention 1
What is the primary UK legislation for preventing money laundering?