STEP Regulatory Framework & Compliance 2 — Questions and Answers
Question 1: Under the USA PATRIOT Act, which threshold triggers mandatory Currency Transaction Report (CTR) filing for cash transactions?
- $5,000
- $10,000 (Correct answer)
- $25,000
- $50,000
Correct answer: $10,000
Financial institutions must file a CTR for cash transactions exceeding $10,000 in a single business day.
Question 2: Which federal agency oversees the enforcement of the Bank Secrecy Act (BSA) for non-bank financial institutions including trust companies?
- Office of the Comptroller of the Currency
- Federal Reserve Board
- Financial Crimes Enforcement Network (FinCEN) (Correct answer)
- Securities and Exchange Commission
Correct answer: Financial Crimes Enforcement Network (FinCEN)
FinCEN, a bureau of the U.S. Treasury, administers and enforces BSA compliance for non-bank financial institutions.
Question 3: A fiduciary discovers that a trust beneficiary is subject to OFAC sanctions. What is the MOST appropriate immediate action?
- Distribute assets proportionally to other beneficiaries
- Freeze the sanctioned beneficiary's share and file an OFAC report (Correct answer)
- Terminate the trust and return assets to the settlor's estate
- Seek court instruction before taking any action
Correct answer: Freeze the sanctioned beneficiary's share and file an OFAC report
OFAC regulations require blocking transactions with sanctioned persons and reporting to OFAC — distributions cannot proceed.
Question 4: Which of the following best describes 'layering' in the context of money laundering?
- Placing illegal funds into the financial system through cash deposits
- Moving funds through complex transactions to obscure their origin (Correct answer)
- Integrating laundered funds into the legitimate economy
- Structuring deposits just below reporting thresholds
Correct answer: Moving funds through complex transactions to obscure their origin
Layering is the second stage of money laundering, involving complex transactions designed to distance funds from their criminal origin.
Question 5: Under the Investment Advisers Act of 1940, a trust company managing separately managed accounts for trust clients would most likely need to register with which regulator if AUM exceeds $110 million?
- State banking regulator only
- Securities and Exchange Commission (SEC) (Correct answer)
- FINRA
- Office of the Comptroller of the Currency (OCC)
Correct answer: Securities and Exchange Commission (SEC)
Investment advisers with AUM exceeding $110 million generally must register with the SEC under the Investment Advisers Act of 1940.
Question 6: The 'know your customer' (KYC) requirement in trust administration primarily serves which purpose?
- Meeting estate planning goals of the settlor
- Verifying client identity to prevent financial crimes (Correct answer)
- Ensuring beneficiaries receive accurate accountings
- Complying with state trust code documentation standards
Correct answer: Verifying client identity to prevent financial crimes
KYC procedures are anti-money laundering tools designed to verify client identity and assess the risk of illegal activity.
Question 7: Which regulation requires financial institutions to identify and verify the identity of beneficial owners of legal entity customers, including trusts that open accounts?
- Regulation B
- FinCEN's Customer Due Diligence (CDD) Rule (Correct answer)
- Regulation E
- Gramm-Leach-Bliley Act
Correct answer: FinCEN's Customer Due Diligence (CDD) Rule
FinCEN's CDD Rule (effective 2018) requires identification of beneficial owners controlling 25% or more of a legal entity and one controlling manager.
STEP Regulatory Framework & Compliance 2
Under the USA PATRIOT Act, which threshold triggers mandatory Currency Transaction Report (CTR) filing for cash transactions?