CRA Regulatory Compliance & Ethical Standards 2 — Questions and Answers
Question 1: Under the Sarbanes-Oxley Act Section 302, which executive is primarily responsible for certifying the accuracy of financial reports?
- Chief Risk Officer
- Chief Compliance Officer
- CEO and CFO jointly (Correct answer)
- External Auditor
Correct answer: CEO and CFO jointly
SOX Section 302 requires the CEO and CFO to personally certify the accuracy and completeness of financial reports filed with the SEC.
Question 2: A risk architect discovers that a colleague is deliberately understating loan loss reserves to inflate quarterly earnings. Under ethical standards, the FIRST action should be:
- Report directly to regulators immediately
- Confront the colleague privately
- Escalate through internal channels such as compliance or audit (Correct answer)
- Resign from the organization
Correct answer: Escalate through internal channels such as compliance or audit
Ethical standards require using internal escalation paths first before considering external reporting, unless internal channels are compromised.
Question 3: The EU's General Data Protection Regulation (GDPR) right to erasure primarily applies when:
- A data subject withdraws consent and no other legal basis exists (Correct answer)
- A regulatory audit is requested
- An employee requests a salary increase
- Data is encrypted at rest
Correct answer: A data subject withdraws consent and no other legal basis exists
GDPR Article 17 grants individuals the right to erasure when consent is withdrawn and no overriding legal basis for processing remains.
Question 4: Which Basel III capital buffer is specifically designed to be built up during periods of excessive credit growth and released during downturns?
- Capital Conservation Buffer
- Countercyclical Capital Buffer (Correct answer)
- Global Systemically Important Bank Surcharge
- Leverage Ratio Buffer
Correct answer: Countercyclical Capital Buffer
The Countercyclical Capital Buffer (CCyB) is activated by national authorities during periods of excessive credit growth to build resilience.
Question 5: A conflict of interest policy is MOST effective when it includes:
- Annual board approval only
- Identification, disclosure, and management or recusal procedures (Correct answer)
- Prohibition on all outside employment
- Mandatory arbitration clauses
Correct answer: Identification, disclosure, and management or recusal procedures
Effective conflict of interest policies require identifying potential conflicts, disclosing them, and either managing or recusing the affected party.
Question 6: Under the Bank Secrecy Act (BSA), a Suspicious Activity Report (SAR) must be filed within how many days of detecting suspicious activity?
- 15 calendar days
- 30 calendar days
- 45 calendar days (Correct answer)
- 60 calendar days
Correct answer: 45 calendar days
BSA regulations require financial institutions to file a SAR within 30 calendar days of initial detection, extendable to 60 days if no subject is identified—standard practice cites 30 days.
Question 7: The principle of 'proportionality' in regulatory compliance means that:
- All firms must implement identical controls regardless of size
- Regulatory requirements should be scaled to the firm's size, complexity, and risk profile (Correct answer)
- Penalties must equal the profit gained from violations
- Compliance budgets must match peer institutions
Correct answer: Regulatory requirements should be scaled to the firm's size, complexity, and risk profile
Proportionality requires that regulatory obligations be commensurate with an institution's size, nature, and risk profile to avoid disproportionate burden.
CRA Regulatory Compliance & Ethical Standards 2
Under the Sarbanes-Oxley Act Section 302, which executive is primarily responsible for certifying the accuracy of financial reports?