CRB Financial Regulations & Compliance 4 — Questions and Answers
Question 1: Which provision of the USA PATRIOT Act requires banks to have a formal Customer Identification Program (CIP)?
- Section 312
- Section 314
- Section 326 (Correct answer)
- Section 352
Correct answer: Section 326
Section 326 of the USA PATRIOT Act requires financial institutions to implement a Customer Identification Program to verify the identity of account holders.
Question 2: A retail bank teller notices a customer regularly exchanges small bills for large bills without any apparent business reason. This is most likely an indicator of:
- Tax avoidance
- Money laundering — placement stage (Correct answer)
- Fraud — check kiting
- Structuring — layering stage
Correct answer: Money laundering — placement stage
Exchanging small bills for large denominations without business purpose is a common indicator of the placement stage of money laundering.
Question 3: Under Dodd-Frank's Volcker Rule, what are banks primarily prohibited from doing?
- Charging overdraft fees without customer consent
- Proprietary trading and owning hedge funds (Correct answer)
- Offering mortgages without income verification
- Sharing customer data with affiliates
Correct answer: Proprietary trading and owning hedge funds
The Volcker Rule prohibits bank holding companies from engaging in proprietary trading or owning, investing in, or sponsoring hedge funds or private equity funds.
Question 4: How long must banks generally retain records related to the Bank Secrecy Act, such as CTRs and SARs?
- 2 years
- 3 years
- 5 years (Correct answer)
- 7 years
Correct answer: 5 years
The BSA requires financial institutions to retain records, including CTRs and SARs, for a minimum of five years.
Question 5: The Home Mortgage Disclosure Act (HMDA) requires lenders to collect and report data primarily to:
- Set maximum mortgage interest rates
- Detect and deter discriminatory lending patterns (Correct answer)
- Verify borrower employment status
- Calculate required capital reserves for mortgage portfolios
Correct answer: Detect and deter discriminatory lending patterns
HMDA data allows regulators and the public to identify potential discriminatory lending patterns and ensure lenders serve their communities fairly.
Question 6: A customer asks a banker to not file a CTR for their $12,000 cash deposit. What should the banker do?
- Honor the customer's request since they are a valued client
- Split the transaction into two deposits to avoid the threshold
- File the CTR as required and potentially file a SAR for the request itself (Correct answer)
- Refuse the deposit entirely
Correct answer: File the CTR as required and potentially file a SAR for the request itself
The bank must file the CTR as required by law, and the customer's request to avoid reporting may itself constitute suspicious activity warranting a SAR.
Question 7: What is the main purpose of Regulation O?
- To restrict overdraft fee practices for consumer accounts
- To limit loans made by banks to their own insiders and affiliated parties (Correct answer)
- To regulate online banking security standards
- To set minimum opening deposit requirements
Correct answer: To limit loans made by banks to their own insiders and affiliated parties
Regulation O restricts credit extended by member banks to their executive officers, directors, and principal shareholders to prevent self-dealing.
CRB Financial Regulations & Compliance 4
Which provision of the USA PATRIOT Act requires banks to have a formal Customer Identification Program (CIP)?