SCA AML/CFT in Capital Markets — Questions and Answers
Question 1: What does AML stand for in financial regulation?
- Asset Management Licensing
- Anti-Money Laundering (Correct answer)
- Automated Market Liquidity
- Annual Market Leverage
Correct answer: Anti-Money Laundering
AML stands for Anti-Money Laundering — the set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income through financial systems.
Question 2: What does CFT stand for in the context of AML/CFT?
- Central Financial Trading
- Countering the Financing of Terrorism (Correct answer)
- Certified Financial Trader
- Commodity Futures Trading
Correct answer: Countering the Financing of Terrorism
CFT stands for Countering the Financing of Terrorism — the measures taken to prevent terrorist groups from accessing the financial system to fund their activities.
Question 3: What is money laundering?
- Physically cleaning banknotes
- The process of making illegally obtained money appear to come from a legitimate source (Correct answer)
- A legal banking service
- A form of tax avoidance
Correct answer: The process of making illegally obtained money appear to come from a legitimate source
Money laundering is the process of concealing the origins of illegally obtained money (e.g., from drug trafficking, corruption) by passing it through complex sequences of banking transfers or transactions to make it appear as legitimate income.
Question 4: What are the three stages of money laundering?
- Earn, save, invest
- Placement, layering, and integration (Correct answer)
- Deposit, transfer, withdraw
- Collection, distribution, laundering
Correct answer: Placement, layering, and integration
The three classic stages of money laundering are: Placement (introducing illegal cash into the financial system), Layering (disguising the trail through complex transactions), and Integration (reintroducing the laundered money as legitimate funds).
Question 5: What is 'customer due diligence' (CDD) in AML compliance?
- Checking a customer's credit score only
- The process of verifying a customer's identity, understanding their business activities, and assessing the risk they pose for money laundering (Correct answer)
- A marketing process to attract new customers
- An annual financial review of the firm
Correct answer: The process of verifying a customer's identity, understanding their business activities, and assessing the risk they pose for money laundering
CDD involves verifying customer identity (who they are), understanding the nature of their business and the source of funds, and assessing the money laundering risk they present. It is a mandatory process for all SCA-licensed firms.
Question 6: What is 'enhanced due diligence' (EDD) and when is it applied?
- Routine CDD applied to all customers
- More intensive verification and monitoring applied to higher-risk customers such as PEPs, complex structures, or high-risk jurisdictions (Correct answer)
- A simplified version of CDD for low-risk customers
- EDD is only for institutional investors
Correct answer: More intensive verification and monitoring applied to higher-risk customers such as PEPs, complex structures, or high-risk jurisdictions
EDD is a more rigorous level of customer due diligence applied when the risk of money laundering is higher — for example, politically exposed persons (PEPs), customers from high-risk jurisdictions, or complex ownership structures.
SCA AML/CFT in Capital Markets
What does AML stand for in financial regulation?