CRB Risk Management & Fraud Prevention 4 — Questions and Answers
Question 1: A retail bank discovers that a branch manager has been approving loans for fictitious borrowers and pocketing the proceeds. This is an example of:
- Credit risk
- Compliance risk
- Internal fraud operational risk (Correct answer)
- Strategic risk
Correct answer: Internal fraud operational risk
Loan fraud perpetrated by a bank employee is classified as an internal fraud event under the operational risk category.
Question 2: Which KYC element requires banks to verify that a beneficial owner holds 25% or more equity interest in a legal entity customer?
- Customer Identification Program (CIP)
- Customer Due Diligence (CDD) (Correct answer)
- Enhanced Due Diligence (EDD)
- Transaction Monitoring
Correct answer: Customer Due Diligence (CDD)
FinCEN's CDD rule requires banks to identify and verify beneficial owners with 25% or more ownership of legal entity customers as part of due diligence.
Question 3: A bank implements a rule-based transaction monitoring system that alerts on cash deposits over $8,000. A major weakness of this approach is:
- It violates BSA reporting thresholds
- Criminals can evade detection by keeping transactions just below the threshold (Correct answer)
- It generates too few alerts for compliance teams to review
- It cannot detect wire transfer fraud
Correct answer: Criminals can evade detection by keeping transactions just below the threshold
Static rule-based thresholds are vulnerable to structuring, where criminals deliberately keep transactions below the trigger amount to avoid detection.
Question 4: Under the Electronic Funds Transfer Act, if a customer reports an unauthorized transaction within two business days, their maximum liability is limited to:
- $0
- $50 (Correct answer)
- $500
- $10,000
Correct answer: $50
Reporting within two business days limits consumer liability to $50 for unauthorized EFT transactions under Regulation E.
Question 5: Which method do criminals most commonly use to launder money through a retail bank in the 'placement' stage?
- Creating shell companies in multiple jurisdictions
- Structuring cash deposits below reporting thresholds (Correct answer)
- Converting funds into real estate investments
- Using trade-based transactions to disguise wire transfers
Correct answer: Structuring cash deposits below reporting thresholds
Placement is the initial stage where illicit cash enters the financial system, most often through structured deposits designed to avoid CTR triggers.
Question 6: A bank's credit risk stress test is primarily designed to:
- Determine the bank's market share under competitive pressure
- Estimate potential loan losses under adverse economic scenarios (Correct answer)
- Calculate the maximum interest rate the bank can charge
- Identify internal control failures in the lending process
Correct answer: Estimate potential loan losses under adverse economic scenarios
Credit risk stress testing models how a bank's loan portfolio would perform under adverse economic conditions to assess potential losses.
Question 7: When a fraudster creates a new identity using a real Social Security number combined with fabricated personal information, this is classified as:
- Account takeover fraud
- New account fraud
- Synthetic identity fraud (Correct answer)
- First-party fraud
Correct answer: Synthetic identity fraud
Synthetic identity fraud combines real and fictitious information to create a new identity that does not belong to any real person.
CRB Risk Management & Fraud Prevention 4
A retail bank discovers that a branch manager has been approving loans for fictitious borrowers and pocketing the proceeds.
This is an example of: