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CTP - 7th Edition > Chapter 7 - Relationship Management and Financial Service Provider Selection > Flashcards

Chapter 7 - Relationship Management and Financial Service Provider Selection Flashcards

1
Q

Legal Lending Limit

A

Maximum amount that can be loaned to a given customer

Typically 25% or 15% in the US

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2
Q

More sophisticated methods of measuring relationship profitability on the part of FSPs has lead to what?

A

Lower costs for a firm purchasing multiple services

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3
Q

DDA

A

Store of value when receiving deposits and a vehicle to facilitate payments

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4
Q

Are DDAs interest bearing in many countries?

A

Yes

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5
Q

Instead of interest, DDAs in the US are usually subject to the ___________?

A

Earnings allowance credit

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6
Q

What do many countries in the world do as it relates to overdraft availability on DDAs?

A

Negotiate an investment rate and a credit rate when overdrafts occur

This is part of setting up the borrowing arrangement ahead of time

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7
Q

Savings Account Types

*Call
*Notice
*Fixed

A

Call – similar to DDA but can’t make third party payments

Notice – notice period

Fixed – only at the end of a specific term

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8
Q

Are MMDAs covered by FDIC insurance?

A

Yes

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9
Q

Nonresident Account

A

Accounts held at an FI in a given country by an entity that is located outside that country

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10
Q

Characters 7 & 8 in a BIC Code represent what (xxxxxxXX)?

A

Business party suffix

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11
Q

UPIC

A

Universal Payment Identification Code

Used for ACH payment to be credited without giving out actual bank details

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12
Q

Who manages the formats of IBANs?

A

SWIFT

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13
Q

Banking relationships in the US are governed by what set of agreed upon rules and practices?

A

UCC Article 4

30 days to reconcile a statement

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14
Q

Many FSPs will use a __________ to reduce documentation needed to maintain an operating relationship

A

Master agreement

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15
Q

Right of offset is usually covered in what type of document related to banking relationships?

A

Service agreement

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16
Q

Which act enhanced reporting requirements for FBAR in 2010?

A

FATCA (Foreign Account Tax Compliance Act)

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17
Q

FATF

A

Financial Action Task Force

Spearheaded the efforts to reduce use of banking services for criminal use

AML

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18
Q

Money Laundering’s Three Stages

A

Placement – physical deposit of cash from illegal proceeds

Layering – series of financial transactions designed to separate cash proceeds

Integration – creating what appears to be a legitimate transaction

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19
Q

BSA

A

Bank Secrecy Act of 1970

AML legislation
Deter money laundering and use of secret foreign accounts
$10,000 requires Form 8300

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20
Q

Form 8300

A

Required to be filed as part of BSA

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21
Q

MLCA

A

Money Laundering Control Act

Enhances BSA by making it a crime to purposefully structure transactions to avoid the reporting threshold

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22
Q

USA PATRIOT Act (2001)

A

Gave the FBI and DOJ increased latitude in intelligence-gathering activities

Imposes significant obligations on nonbank FIs

Includes nonfinancial entities with high-value transactions

All foreign banks in the US are subject to US jurisdiction

Prohibits US banks from maintaining foreign shell banks

Credit card issuers that are foreign must take steps to prevent usage by terrorists

Increased KYC requirements

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23
Q

FinCEN’s CDD Rule (2018)

A

Customer Due Diligence

Requires identification of beneficial owners

25% or more or have control

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24
Q

Following which standard is genearlly the best approach for working through KYC documents with a bank?

A

Use the FATF standards

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25
CIPs
Customer identification programs Efforts to know and understand customers initially and on an ongoing basis
26
Two Most Common FSP Performance Measurement Techniques
Scorecards Relationship Reviews
27
Scorecards
Quantitatively and qualitatively measure an FSP’s performance Primary purpose is to provide feedback on the service provided and benefit received
28
Bank Compensation
How the bank earns money from providing services
29
TWIST
Transition Workflow Innovation Standards Team Developed ISO 20022 camt.086 messages
30
AFP Global Service Codes
Works with camt.086 and ASC X12 822 Covered globally
31
Banks got around Regulation Q by doing what to compensate balances held?
Utilizing the earnings credit
32
Value Dating
Reduces available balances, which reduces interest earned on the account Bank doesn’t have to pay interest on positive balances or earns interest charged on negative balances
33
Instead of value dating, US banks achieve similar results using ___________ and ____________
Availability & as-of adjustments
34
ECA
Earnings Credit Analysis
35
ECR
Earnings Credit Rate
36
ASC X12 822
Standardized format for reporting account analysis statements electronically
37
ASC (Organization)
Accredited Standards Committee Subset of ANSI
38
ANSI
American National Standards Institute
39
Average ledger balance calculations are net of any __________________
Current period adjustments
40
Can US Reserve Banks pay interest following Dodd Frank?
Yes
41
Is the reserve requirement negotiable?
Yes, especially since the bank will receive interest income
42
Deposit Fees | (Bank Analysis)
Previously shown as FDIC fees 2012 FDIC requested to rename as fees weren’t paid directly to FDIC
43
Deposit fees are usually calculated on which balance?
Full ledger balance
44
Available or Investable Balance
Average collected balance minus the reserve requirement Represents amount bank was able to invest
45
Fees vs. Balance Compensation | (Thought process for Treasurers)
Treasurers must decide whether to compensate banks by paying fees or by negotiating lower fees for higher balances May be more advantageous sometimes to gain ECR compared to short-term investment rates
46
Are earnings credits taxable?
No
47
What typically happens if the earnings credit is above the total bank fees?
Excess earnings credits are lost Some hybrid accounts allow it to be paid out as interest
48
Bank Rationale for Fees vs. Balance Compensation
Fees: increase liabilities with deposits and fees are low-risk source of income Balance Compensation: may be used to fund loans and investments
49
Service Charge Categories | Review Only
Implementation Maintenance Account Services Transaction Processing Information Delivery Technology
50
If MMDAs terms regarding limits of transfers are violated, what might the bank do?
Impose fees Convert the account to a DDA
51
What is the importance of requiring a standard currency when performing the annual relationship review with a bank?
Comparability Most well-designed templates will be setup this way
52
RFP
Request for Proposal Outlines firm’s objectives, needs, and service requirements
53
RFI
Request for Information Asks selected providers to submit general information
54
RFQ
Request for Quotation Invite providers to bid on specific products or services Best used when products and services are standardized
55
Two Basic Elements of the RFP
The substance of the required products and/or services Form in which the RFP will be delivered (comparability)
56
What is important to remember when managing multiple vendors in an RFP process as it relates to questions?
Transparency Share the question and answer with the entire pool
57
Counterparty Risk
Risk that a counterparty in a contract will not be able to meet its contractual obligations
58
SOC 1
Systems and Organization Controls Covered under SSAE 18
59
SSAE 18 equivalent for international standards
ISAE No. 3402
60
Primary benefit of utilizing a service auditor and their report for SOC 1 engagements?
The FSP doesn’t have to be visited by multiple user auditors
61
Bank Monitoring Tools | (What can outsiders reference to review?)
Financial Statements Credit Analysis Regulator Assessments
62
How do banks calculate their losses related to loans under US GAAP and IFRS standards?
New rules require them to be calculated as the expected credit loss over the life of the loan
63
UBPR
Uniform Bank Performance Report Primary publicly available tools for assessing the general financial risk of a US Bank Helpful in assessing in comparison to peers
64
Who is the UBPR published by?
FFIEC Federal Financial Institutions Examination Council
65
UBPRs display what types of data?
Data for the specific bank Data for a peer group Percentile rankings
66
Sovereign Risk
Risk that government may default on its debt
67
Political Risk
Risk that a government may take actions that negatively impact a firm’s operations and/or value
68
Nationalization
Government takeover of one or more companies Compensation is usually far less than the current market value, if any is paid
69
Blocked Currencies
Profits cannot be converted from the local currency into a major trading currency
70
Forced Reinvestment
Funds cannot be transferred out of the country in any form, or it is limited
71
Required Majority Ownership
Firms must be owned by resident nationals
72
GDPR
General Data Protection Regulation Applies to EU citizens and transferring data outside EEA
73
Red Flags Rule / FACT Act of 2003
US regulations that require FIs and creditors to develop and implement written identity theft prevention programs
74
US Foreign Corrupt Practices Act of 1977 (FCPA)
Forbids US firms from engaging in the practice of “greasing the wheels” payments
75
Expropriation
A government takeover of property, with or without compensation
76
Which act established FBAR?
BSA (1970)
77
For bank analysis statements, do all banks use standardized terminology?
No AFP Codes and ASC X12 822 are designed to better standardize, but differences still exist
78
Bank Concentration Risk
Risk that there will be a single point of failure for banking services
79
What is the best approach for implementing complex and/or global systems?
Test new practices and procedures in one area before they are rolled out company-wide
80
Three Tasks for treasury to complete before designing and administering the RFP?
Define the Objective Determine the Business Requirements Develop the Project Plan
81
Tools available to help companies monitor the financial health of banks
Published Financial Statements Credit Analysis Regulator’s Assessments

CTP - 7th Edition (19 decks)

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