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My Cards > Fundamentals of Risk Management (2) > Flashcards

Fundamentals of Risk Management (2) Flashcards

1
Q

Credit Risk

A

Risk that a party to a transaction cannot provide the necessary funds as contracted for settlement to take place on the scheduled date.

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2
Q

Operational Risk

A

Risk that a transaction is altered or delayed due to an unintentional error.

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3
Q

Fraud Risk

A

Risk that a payment transaction will be initiated or altered in an attempt to misdirect or misappropriate funds.

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4
Q

Systemic Risk

A

Risk that the inability or unwillingness of one funds transfer system participant to settle its commitments will cause other participants to be unable to settle their commitments.

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5
Q

Compliance Risk

A

Risk that occurs when a party to a transaction fails to comply, either knowingly or inadvertently, with payment system rules and policies, regulations and applicable U.S. and state law.

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6
Q

Direct Access Risk

A

Risk that occurs when an ODFI permits an Originator or Third-Party to use its routing number to send files directly to the ACH Operator.

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7
Q

Reputation Risk

A

Risk that occurs when a negative publicity regarding a financial institution’s business practices leads to a revenue loss or litigation.

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8
Q

Third-Party Risk

A

Risk that arises from a financial institution relying upon outside parties to perform services or activities on its behalf.

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9
Q

Legal Risk

A

Risk that occurs from an institution’s failure to enact appropriate policies, procedures or controls to ensure it conforms to laws, regulations, contractual arrangements and other legally binding agreements and requirements.

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10
Q

Transaction Risk

A

Risk associated with foreign exchange.

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11
Q

Liquidity Risk

A

Current and potential risk to earnings or capital arising from a financial institution’s inability to settle an obligation for full value when it is due.

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12
Q

Strategic Risk

A

Risk might arise from making poor business decisions, from the substandard execution of decisions, from inadequate resource allocation or from failure to respond well to changes in the business environment.

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13
Q

Cross-Channel Risk

A

Risk that occurs because of theft from deposit accounts by way of multiple access points.

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14
Q

Counterparty Risk

A

Risk to each party of a contract that the counterparty will not live up to its contractual obligations.

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15
Q

Enterprise Risk Management (ERM)

A

Process of planning, organizing, leading and controlling the activities of an organization to minimize the effects of risk on that organization.

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16
Q

Committee of Sponsoring Organizations (COSO)

A

Voluntary private-sector organization formed in 1985 dedicated to improving the quality of financial reporting.

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17
Q

Federal Reserve Board’s Payments System Risk (PSR) Policy

A

Governs the provisions of intraday credit (daylight overdrafts) in accounts at the Reserve Banks.

18
Q

(1) Missed transmission deadlines; (2) Hardware/software failures and loss of power; (3) Clerical errors; (4) Inadequate procedures; (5) Inadequate training

A

Examples of operational risk with ACH payments.

19
Q

(1) Processing risks; (2) Employee and/or service provider errors; (3) Hardware and software failure, including service provider

A

Examples of operational risk with card payments.

20
Q

(1) Faulty equipment; (2) Inadequate procedures; (3) Inadequate training; (4) Poor image quality; (5) Resubmission of file or redeposit of physical items; (6) Technology-related issues, such as failure to maintain compatible and integrated IT systems; (7) Reliability of RDC vendor

A

Examples of operational risk with check payments processed through Remote Deposit Capture (RDC).

21
Q

(1) System failure caused by breakdown in hardware/software; (2) System disruption; (3) System compromise; (4) Inadequate procedures; (5) Inadequate training

A

Examples of operational risk with wire payments.

22
Q

(1) Inadequate procedures; (2) Inadequate training; (3) Reliability of vendor; (4) Employee or end user errors

A

Examples of operational risk with emerging payments.

23
Q

(1) Misappropriation of funds; (2) Misdirect payment; (3) Account takeover; (4) Business email compromise scam; (5) Vendor impersonation fraud

A

Examples of fraud risk with ACH payments.

24
Q

(1) Lost or stolen cards; (2) Phishing scams; (3) Skimmers; (4) Data breaches; (5) Counterfeit or altered cards; (6) Unauthorized use of a Cardholder’s card number for card-not-present transactions

A

Examples of fraud risk with card payments.

25
Q

(1) Lost or stolen checks; (2) Alteration of deposited items; (3) Forged or missing endorsement; (4) Deposit of counterfeit items; (5) Check kiting; (6) Redeposit of items/duplicate presentment through RDC; (7) Proper disposal of deposited items by RDC customers; (8) Insider fraud

A

Examples of fraud risk with check payments.

26
Q

(1) Malware, spyware and viruses; (2) Business email compromise; (3) Money laundering; (4) Dishonest employees; (5) Lack of dual controls or segregation of duties

A

Examples of fraud risk with wire payments.

27
Q

(1) Speed of processing; (2) Reduced reaction time to fraud; (3) Breaches/data security; (4) Malware, spyware and viruses

A

Examples of fraud risk with emerging payments.

28
Q

(1) Originator fails to fund ODFI for credit entries initiated; (2) RDFI posted credit entry prior to Settlement Date

A

Examples of credit risk with ACH credit payments.

29
Q

(1) ODFI is unable to recover funds from Originator for returned debit entries; (2) RDFI is untimely in returning debit entries

A

Examples of credit risk with ACH debit payments.

30
Q

Up to two banking days

A

Maximum timeframe an ODFI is exposed to credit risk for ACH credit origination.

31
Q

(1) Up to 60 days from the Settlement Date for consumer Standard Entry Class (SEC) codes per the ACH Rules; (2) Up to 60 days from the consumer’s statement date per Regulation E

A

Maximum timeframe an ODFI is exposed to credit risk for ACH debit origination.

32
Q

(1) Merchant declares bankruptcy, commits fraud or is otherwise unable to pay its chargebacks causing the Acquiring Financial Institution to pay the Card Issuer; (2) With EMV, the Card Issuer may encounter credit risk due to fallback transactions

A

Examples of credit risk with card payments.

33
Q

(1) Bank of First Deposit (BOFD) credits the account holder provisionally and settlement does not occur for several days; (2) Paying Bank misses deadline for processing returns and adjustments

A

Examples of credit risk with check payments.

34
Q

(1) Failure or bankruptcy of entity initiating payment; (2) Funds availability prior to receiving final settlement; (3) Per-transaction dollar limits being set too high; (4) Funds unavailable to satisfy debit return

A

Examples of credit risk with emerging payments.

35
Q

(1) Originating/Sender Bank makes an irrevocable payment on behalf of a customer through an extension of credit; (2) Beneficiary Bank does not post the payment properly

A

Examples of credit risk with wire payments.

36
Q

(1) Regulation E; (2) Regulation Z; (3) Card Association Rules

A

Card payment system is governed by these rules and regulations.

37
Q

(1) UCC 4A; (2) OFAC; (3) Bank Secrecy Act (BSA); (4) Regulation E, Subpart B; (5) Regulation J; (6) Regulation CC; (7) Federal Reserve Operating Circulars 1, 5 & 6

A

Wire payment system is governed by these rules and regulations.

38
Q

(1) Regulation CC; (2) UCC Article 3; (3) UCC Article 4; (4) Regulation J, Subpart A; (5) Federal Reserve Bank Operating Circular 3; (6) ECCHO Rules

A

Check payment system is governed by these rules and regulations.

39
Q

(1) ACH Rules; (2) EFTA and Regulation E; (3) Regulation CC; (4) Regulation D; (5) 31 CFR Part 203, 208, 210 & 370; (6) UCC Articles 4 & 4A; (7) BSA/AML; (8) State EFT Acts; (9) FRB Operating Circular 4; (10) Private Sector ACH Operator Rules; (11) OFAC

A

ACH Network is governed by these rules and regulations.

40
Q

Generally, these are ACH or card transactions; therefore, the respective payment system rules and regulations would apply.

A

Emerging payments are governed by these rules and regulations.

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