Finastra Assessment Financial Crime and Compliance Questions and Answers — Questions and Answers
Question 1: A bank's transaction monitoring system flags a series of cash deposits into a single account. Each deposit is for $9,500 and occurs on three consecutive days at different branches. This pattern is most indicative of which type of financial crime?
- Insider trading
- Asset misappropriation
- Structuring (Correct answer)
- Tax evasion
Correct answer: Structuring
Structuring, also known as 'smurfing,' is the act of making multiple small financial transactions to avoid regulatory reporting thresholds. In the U.S., financial institutions must file a Currency Transaction Report (CTR) for cash transactions exceeding $10,000. By keeping each deposit under this threshold, the individual is likely attempting to evade this reporting requirement.
Question 2: Which of the following is the primary responsibility of a Money Laundering Reporting Officer (MLRO) within a financial institution?
- Approving high-value corporate loans.
- Developing marketing strategies for new financial products.
- Conducting daily audits of the institution's financial statements.
- Receiving and assessing internal suspicious activity reports and filing SARs with authorities. (Correct answer)
Correct answer: Receiving and assessing internal suspicious activity reports and filing SARs with authorities.
The core function of an MLRO is to act as the central point for anti-money laundering (AML) compliance. This involves receiving reports of suspicious activity from employees, evaluating them, and, if necessary, filing a Suspicious Activity Report (SAR) with the relevant national authority, such as FinCEN in the United States.
Question 3: A financial institution is onboarding a new corporate client. The client is a privately held company operating in a high-risk jurisdiction known for corruption. Which level of due diligence should be applied?
- Simplified Due Diligence (SDD)
- Enhanced Due Diligence (EDD) (Correct answer)
- Customer Identification Program (CIP) only
- Standard Due Diligence (SDD)
Correct answer: Enhanced Due Diligence (EDD)
Enhanced Due Diligence (EDD) is required for high-risk customers. Factors that trigger EDD include operating in a high-risk country, complex ownership structures, or being involved in industries susceptible to money laundering. EDD involves gathering more detailed information, such as the source of wealth and funds, to mitigate the increased risk.
Question 4: The Financial Action Task Force (FATF) sets international standards for combating money laundering and terrorist financing. What is the foundational principle of the FATF Recommendations?
- A prescriptive, one-size-fits-all regulatory framework.
- A focus exclusively on criminal prosecution after a crime has occurred.
- A risk-based approach (RBA) tailored to national circumstances. (Correct answer)
- Mandatory quarterly reporting of all international transactions to the FATF.
Correct answer: A risk-based approach (RBA) tailored to national circumstances.
The cornerstone of the FATF standards is the risk-based approach (RBA). This approach requires countries to identify, assess, and understand their specific money laundering and terrorist financing risks, and then apply anti-money laundering and counter-terrorist financing (AML/CFT) measures that are proportionate to those risks.
Question 5: A compliance officer at a bank is using a screening tool to check a new customer's name against various sanctions lists, including the OFAC SDN list. This process is a critical component of:
- Credit risk assessment
- Market abuse surveillance
- The bank's annual profitability audit
- Sanctions compliance and KYC procedures (Correct answer)
Correct answer: Sanctions compliance and KYC procedures
Screening customers against sanctions lists from bodies like the Office of Foreign Assets Control (OFAC) is a fundamental part of Know Your Customer (KYC) and sanctions compliance programs. It ensures the institution does not conduct business with individuals, entities, or countries that are subject to economic sanctions, thereby preventing terrorist financing and other illicit activities.
Question 6: Under the Bank Secrecy Act (BSA) in the United States, when must a financial institution file a Suspicious Activity Report (SAR)?
- Within 10 business days of any transaction over $5,000.
- Only when a customer is officially charged with a crime.
- No later than 30 calendar days after the date of initial detection of facts that may constitute a basis for filing. (Correct answer)
- Annually for all accounts that have had more than 100 transactions.
Correct answer: No later than 30 calendar days after the date of initial detection of facts that may constitute a basis for filing.
FinCEN regulations require a financial institution to file a SAR no later than 30 calendar days after the date it initially detects facts that may constitute a basis for filing a report. If a suspect cannot be identified, the filing period can be extended by an additional 30 days, but not to exceed 60 days in total.
Finastra Assessment Financial Crime and Compliance Questions and Answers
A bank's transaction monitoring system flags a series of cash deposits into a single account.
Each deposit is for $9,500 and occurs on three consecutive days at different branches.
This pattern is most indicative of which type of financial crime?