FIA Financial Regulation & Supervision 4

Question 1

The SEC's Regulation Best Interest (Reg BI) requires broker-dealers to act in whose best interest when making a recommendation?

Accepted Answer

The retail customer

Answer

Reg BI requires broker-dealers to act in the best interest of the retail customer and not place their own financial interests ahead of the customer's.

Question 2

What is the key distinction between a bank's 'Tier 1' and 'Tier 2' capital?

Accepted Answer

Tier 1 is core capital (highest quality); Tier 2 is supplementary capital

Answer

Tier 1 capital consists of the highest-quality, most loss-absorbing capital (common equity), while Tier 2 is supplementary capital with lower loss-absorbing capacity (e.g., subordinated debt).

Question 3

Which regulatory requirement obligates financial institutions to have plans for their own orderly resolution in the event of failure?

Accepted Answer

Living wills (resolution plans)

Answer

Living wills, or resolution plans, are required by Dodd-Frank for large financial institutions to outline how they could be wound down without taxpayer bailouts.

Question 4

The Liquidity Coverage Ratio (LCR) requires banks to hold enough high-quality liquid assets to cover:

Accepted Answer

30 days of net cash outflows under a stress scenario

Answer

The LCR mandates that banks maintain sufficient high-quality liquid assets (HQLA) to survive a 30-day liquidity stress scenario.

Question 5

Under anti-money laundering (AML) rules, what is a 'Suspicious Activity Report' (SAR)?

Accepted Answer

A report filed with FinCEN when a financial institution suspects illegal activity

Answer

SARs are confidential reports filed by financial institutions with FinCEN when they detect transactions that may indicate money laundering, fraud, or other illegal activity.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Financial Regulation & Supervision 4