Additional Privacy and Insurance Questions

Question 1

Bob Jones, president of First National Bank, does not believe the bank has to do anything to comply with the FFIEC Interagency Guidance. The bank has an information-only Web site, does not offer any online Internet banking services, and only offers telephone banking at this time. Which of the following statements best describes the bank’s responsibility?
Statement 1: The bank does not offer any Internet banking services, so it does not need to worry about the Interagency Guidance at this time.
Statement 2: First National Bank should conduct a risk assessment on their telephone banking services. They should provide written support for the low risk and adequacy of single-factor authentication.
Statement 3: Telephone banking service offers only standard balance and transfer between accounts. No risk assessment is required.
Statement 4: The bank should have information on fraud and identity theft inserted on its Web site for customer awareness. Information should also be available in the bank lobby and should be evaluated periodically.

a. Statement 1 only
b. Statement 2 only
c. Statements 1 and 2
d. Statements 2 and 4

Answer 1

d. Statements 2 and 4

The bank needs to conduct a risk assessment for its telephone banking services and provide support for maintaining single-factor authentication assessment and low risk. The bank is also required to provide customer awareness information to their customers.

Question 2

Acme Bank offers its customers Internet banking that includes bill payment services, wire transfer initiation, and access to customer account history. Acme has had to spend a substantial amount of money implementing a multifactor authentication system that will continue to be fairly expensive to operate. Which of the following is the best alternative for Acme that will allow the bank to be in compliance with the FFIEIC guidance?

a. The bank could provide the multifactor authentication to all customers who use the Internet banking services
b. The bank could discontinue offering Internet banking to its customers
c. The bank could ask its customers to choose which type of authentication they will use, and disclose the risks involved if the customer decides not to use multifactor methods
d. The bank could restructure its Internet banking product to restrict customer account information and allow transfers only to other accounts owned by the customer

Answer 2

a. The bank could provide the multifactor authentication to all customers who use the Internet banking services

Cutting back or discontinuing its services is not the best answer for the bank. The customers cannot opt out of the multifactor authentication in high-risk transactions.

Question 3

To which of the following activities does the FFIEC Guidance on Authentication apply?

a. Internet banking only
b. Telephone and Internet banking
c. Call center banking only
d. Internet, telephone, and call center banking

Answer 3

d. Internet, telephone, and call center banking

The guidance covers all types of electronic banking including voice response units, telephone banking, and call center banking where high-risk transactions can be conducted

Question 4

ACME Bank is reviewing its security program for safeguarding customer information. All but one of the following functions should be included in its review. Which one need NOT be included?

a. The bank’s Internet Web site
b. The bank’s loan operations back office where loan files are kept
c. The bank’s system of disposing of its trash
d. The bank’s printed marketing and promotional materials

Answer 4

d. The bank’s printed marketing and promotional materials

Question 5

State National Bank’s security officer is preparing for the bank’s annual information security review. Which of the following steps is NOT required for this review?

a. An intrusion test of the bank’s online banking system
b. An audit of the bank lobby during business hours to determine whether customer information is kept private
c. A review of all contracts from service providers with access to bank customer information
d. A review of all outside windows to check for physical security

Answer 5

d. A review of all outside windows to check for physical security

Item (d) is not a requirement of safeguarding customer information. It is, however, a security procedure related to the Bank Protection Act.

Question 6

Which of the following actions is NOT a requirement of the bank’s directors in implementing an information security program?

a. Approve the information security program
b. Determine whether the information security officer is qualified
c. Physically audit the bank’s online banking system
d. Review management reports on information security periodically

Answer 6

c. Physically audit the bank’s online banking system

This is not a requirement for the board of directors.

Question 7

If a bank is a government securities broker or dealer, what are its responsibilities when it obtains a Form G-FIN-4 or an MSD-4 from an employee?

a. Retain the form for 10 years
b. Verify the accuracy of all information on the form
c. Verify the accuracy of the information by inquiring of all employers of the employee for the previous three years
d. Verify the accuracy of the information by inquiring of all employers of the employee for the previous five years

Answer 7

c. Verify the accuracy of the information by inquiring of all employers of the employee for the previous three years

Question 8

When is it permissible for a bank that is a government securities broker or dealer to refrain from filing a Form G-FIN-5 or a Form MSD-5 when an employee terminates the associated person status?

a. When the employee files the form
b. When the bank does not have all the necessary information and notifies its regulatory agency
c. When the employee’s status is reinstated within six months
d. When the employee remains employed by the bank and the bank notifies its regulatory agency

Answer 8

d. When the employee remains employed by the bank and the bank notifies its regulatory agency

Question 9

What is the maximum number of government securities transactions a bank may have and still remain exempt from the Government Securities Act?

a. 100 per year
b. 250 per year
c. 400 per year
d. 499 per year

Answer 9

d. 499 per year

Question 10

Which of the following actions is NOT a custodial requirement of the Government Securities Act?

a. Keeping possessory government securities in a vault with dual control access
b. Segregating government securities from bank assets
c. Keeping government securities free of liens, claims, and charges.
d. Issuing safekeeping receipts for securities

Answer 10

a. Keeping possessory government securities in a vault with dual control access

Question 11

A bank that is a government securities broker accepts money from a customer for the purchase of securities on Monday and does not purchase the securities by the end of the day on Tuesday. Does the bank have any responsibilities under the Government Securities Act?

a. No. The bank has fulfilled its responsibilities under the Act.
b. Yes. The bank must purchase the securities before the close of business on Wednesday.
c. Yes. The bank must deposit the money in an account of the customer at the close of business on Tuesday.
d. No. The bank has until the close of business on Wednesday to purchase the securities before being liable to the customer for failure to effect a purchase.

Answer 11

c. Yes. The bank must deposit the money in an account of the customer at the close of business on Tuesday.

The bank has until the close of business on the day after the day the money is tendered to the bank for the purchase to actually purchase the securities. If it does not, it must deposit the money in the customer’s account and notify the customer of the deposit.

Question 12

Under what circumstances will a G-FINW (a withdrawal as a government securities dealer) become effective in less than 60 days?

a. If the bank requests a shorter time period
b. If the regulatory agency determines that a shorter time period would be appropriate
c. If the bank ceases doing business as a securities dealer
d. If the bank has no employees that qualify as associated persons

Answer 12

b. If the regulatory agency determines that a shorter time period would be appropriate

Question 13

When is it possible for a bank to be exempted from compliance with some of the Government Securities Act custodial regulations?

a. When the bank maintains its securities in the ordinary course of business
b. When the bank has procedures in place to make sure it complies with the custodial regulations of its federal regulatory agency
c. When the bank does not hold itself out as a government securities broker or dealer
d. When the bank uses more than the normal standard of care when maintaining possession and control of securities

Answer 13

b. When the bank has procedures in place to make sure it complies with the custodial regulations of its federal regulatory agency

A financial institution that is regulated by a federal agency and has policies and procedures in place to ensure that the agency’s regulations are followed regarding custody of securities may be exempted from a portion of the custodial requirements of the Government Securities Act. A bank that does not hold itself out as a government securities dealer and that does not actively solicit government securities business may be exempt from registration requirements but is still covered by custodial requirements.

Question 14

Which of the following entities is exempt from the requirements of the Government Securities Act?

a. A bank that operates a securities underwriting department to provide underwriting services to issuers of government securities
b. A national bank that purchases and sells government securities only in its fiduciary capacity on behalf of clients in its trust department
c. A bank that operates a financial advisory service that provides advice to clients on the purchase and sale of government securities
d. A bank that operates an investment department to provide investment advice and purchase and sell all types of securities (including government securities) for clients

Answer 14

b. A national bank that purchases and sells government securities only in its fiduciary capacity on behalf of clients in its trust department

The national bank that purchases and sells government securities only in its fiduciary capacity to trust department clients is not considered to be an associated person, and therefore is exempt from the requirements of the Government Securities Act.

Question 15

Transactions with which of the following government securities would NOT subject a bank to the registration requirements of the Government Securities Act?

a. Obligations of the Farm Credit System
b. GNMA securities
c. U.S. Savings Bonds
d. FNMA obligations

Answer 15

c. U.S. Savings Bonds

Question 16

Which of the following elements is NOT required to be in a repurchase agreement between a bank that is a government securities dealer and a counterparty?

a. A statement that the funds are not insured by the FDIC
b. A list of the specific securities that are the subject of the agreement
c. A provision for substitution of securities if they can be substituted
d. A statement that the bank is a regulated government securities dealer

Answer 16

d. A statement that the bank is a regulated government securities dealer

Question 17

Jayne Logan, a loan officer at State National Bank, has recently recruited Mr. David Roberts as a new loan customer. She has known Mr. Roberts for 10 years and handled his lending transactions at another bank where she previously worked. As his first transaction with State National Bank, Mr. Roberts pledges stock that is traded on the NYSE. The stock is received directly from Mr. Roberts, who has his secretary personally deliver it to the bank. Is the bank required, in this instance, to send a lost or stolen securities inquiry regarding the stock? Why or why not?

a. No. Because Ms. Logan has known Mr. Roberts for more than five years, no inquiry must be sent.
b. Yes. Because Mr. Logan is a new customer to the bank, the inquiry must be sent.
c. No. Because Mr. Logan’s secretary personally delivered the stock certificates, no inquiry must be sent.
d. Yes. All stock pledged against a loan that is traded on the NYSE must have an inquiry sent.

Answer 17

b. Yes. Because Mr. Logan is a new customer to the bank, the inquiry must be sent.

Transactions like this one must have inquiries sent to the SIC because Mr. Logan is a new customer. The bank has not had any previous securities-related transactions with Mr. Logan.

Question 18

A compliance officer receives a call from a loan officer who asks for advice on what she should do with a stock certificate (1,437 shares of IBM) from a new loan customer who wants to pledge it in support of a loan that has been approved at your bank. What should the compliance officer tell her FIRST?

a. Retain a copy of the certificate in the loan file
b. Retain the original certificate in the branch vault for the term of the loan
c. Record the certificate information and give the original back to the customer
d. Contact the SIC to determine if the certificate was reported as lost, counterfeit, or stolen

Answer 18

d. Contact the SIC to determine if the certificate was reported as lost, counterfeit, or stolen

Unless the certificate is received in connection with one of the types of transactions that do not require that an inquiry be made, banks must inquire about all certificates that come into their possession to ascertain whether they have been reported as lost, counterfeit, or stolen.

Question 19

How long after discovery does a bank have to report any lost or missing securities when criminal activity is suspected?

a. 90 calendar days
b. 1 business day
c. Never. Law enforcement must report
d. 10 business days

Answer 19

b. 1 business day

Question 20

Generally, a financial institution is required to ascertain if securities certificates they have taken by pledge, transfer, or otherwise have been reported as missing, lost, counterfeit, or stolen. When is it NOT required to take such actions?

a. When the securities certificate is received directly from the issuer or issuing agent at issuance.
b. When the bank officer personally knows the individual pledging the certificate.
c. When the securities certificate received as part of a transaction has a face value of $20,000 or less.
d. When the securities certificate is received directly from an insured delivery service.

Answer 20

a. When the securities certificate is received directly from the issuer or issuing agent at issuance.

Question 21

A recent audit revealed that the bank’s personal trust division was failing to determine whether securities being accepted from new trust customers have been reported as lost or stolen. To address the root cause of this problem, what should the compliance officer do FIRST?

a. Inquire with the SIC about all securities noted in the audit
b. Contact the bank’s primary regulator to determine the best course of action
c. Retrain all personal trust administrators on the lost and stolen securities requirements
d. Review the policies and procedures for accepting securities in new personal trust relationships to ensure securities verification

Answer 21

d. Review the policies and procedures for accepting securities in new personal trust relationships to ensure securities verification

Addressing the policies deficiencies should be the first course of action. Training personnel and inquiring about securities are a part of the corrective action, but the policy must be developed first.

Question 22

In which of the following situations is the bank NOT required to report lost or stolen securities?

a. When bonds were expected to be delivered in person from the local Federal Reserve Bank and were not received
b. When stock traded on the over-the-counter exchange (OTC) was expected to be received through the mail from a customer’s broker
c. When securities with no CUSIP numbers were expected from another financial institution
d. When stock traded on the New York Stock Exchange (NYSE) was expected to be delivered by the issuer’s agent

Answer 22

c. When securities with no CUSIP numbers were expected from another financial institution

Securities with no CUSIP numbers are exempt from reporting requirements. All of the other transactions described are covered.

Question 23

First National Bank (FNB) purchased a table for $500 at the Governor’s re-election fundraising dinner last fall. FNB President Sally Holmes tells Mary Watkins, the municipal securities principal, that the bank is planning to participate in the upcoming state highway bond. What does Ms. Watkins tell President Holmes?

a. The bank cannot participate without prior approval of the MSRB.
b. The bank can participate because national banks are exempt from MSRB rules.
c. The bank can participate, provided it includes the contribution on its next disclosure.
d. The bank cannot participate within two years of a contribution to the issuer.

Answer 23

d. The bank cannot participate within two years of a contribution to the issuer.

Question 24

Which of the following actions is NOT required of a municipal securities principal?

a. Pass the Municipal Securities Principal Qualification Examination
b. Complete Form MSD-4 and submit it to the bank
c. Work as an apprentice for one year in a municipal securities operation
d. Work in a supervisory role in a municipal securities operation

Answer 24

c. Work as an apprentice for one year in a municipal securities operation

Question 25

First National Bank is a municipal securities dealer. Its municipal securities department is supervised by Mary Watkins, a municipal securities principal. The department has five other employees, including two municipal securities representatives. Martin Wells, a commercial loan customer of the bank, tells Ms. Watkins he wants to invest in municipal securities and asks for her help. Mr. Wells has never dealt with the municipal securities department of the bank and has never purchased municipal securities. He wants to purchase the securities today. What should Ms. Watkins do?

a. Determine what he would like to buy and help him buy it
b. Help him make the purchase only if she can be assured the transaction meets the MSRB suitability requirements
c. Help him make the purchase but avoid making any recommendations or comments about the advisability of the transaction
d. Refer him to a municipal securities representative

Answer 25

b. Help him make the purchase only if she can be assured the transaction meets the MSRB suitability requirements

Ms. Watkins should make sure she can get enough financial information from the customer before she proceeds with the transaction.

Question 26

In which of the following activities may a bank engage and NOT be considered a municipal securities dealer?

a. Underwriting municipal securities
b. Buying securities for the bank’s own account
c. Providing advice to customers regarding the purchase of municipal securities
d. Engaging in research and giving investment advice regarding municipal securities

Answer 26

b. Buying securities for the bank’s own account

Question 27

A bank municipal securities dealer has 30 employees in its municipal securities operation. How many municipal securities principals must it have?

a. At least one
b. At least three
c. No more than five
d. At least two

Answer 27

d. At least two

Question 28

A municipal securities principal must directly supervise municipal securities operations. This includes reviewing all but one of the following. Which task is NOT involved in directly supervising municipal securities operations?

a. Opening the customer’s account
b. Providing quotations to customers
c. Handling customer complaints
d. Handling a municipal securities transaction

Answer 28

b. Providing quotations to customers

Question 29

State National Bank offers credit life and disability insurance on all consumer loans. This credit-related insurance is sold by a third party, but the bank collects a commission on all sales. The bank also sells hazard insurance through its affiliated insurance agency. Which of the following actions is legal for State National?

a. Require all consumers to purchase credit life insurance through the bank
b. Require only certain consumers to purchase credit life insurance through the bank
c. Require all borrowers with real property loans to provide insurance to protect the collateral
d. Require borrowers on real estate loans over $50,000 to purchase hazard insurance through the bank

Answer 29

c. Require all borrowers with real property loans to provide insurance to protect the collateral

The other options are all prohibited.

Question 30

Of the following practices, which one is NOT accepted in insurance and annuity sales?

a. Reviewing insurance company ratings
b. Monitoring customer complaints against insurance companies
c. Verifying that personnel are properly licensed
d. Churning accounts

Answer 30

d. Churning accounts

Question 31

Of the following actions, which one is NOT recommended by the OCC’s advisory letter as a necessary tool of management oversight of insurance and annuity sales?

a. Hiring competent personnel
b. Establishing a separate insurance agency
c. Auditing systems and controls
d. Requiring a member of management to actively oversee this function

Answer 31

b. Establishing a separate insurance agency