Module 4 Flashcards
What is the primary purpose of regulatory frameworks in global finance?
To maintain the stability, integrity, and security of financial systems.
Name three primary challenges financial institutions face in global finance compliance.
Financial stability, transparency, and protection against fraud.
What do international regulatory frameworks provide for financial systems?
Clear legal boundaries, risk mitigation, and oversight of electronic banking operations.
What risks do regulatory frameworks aim to manage in global transactions?
Fraud, money laundering, and financial crises.
What are the Basel Accords, and who developed them?
A set of international banking regulations by the Basel Committee on Banking Supervision (BCBS).
What was the focus of Basel I?
Credit risk and requiring banks to hold capital equivalent to 8% of their risk-weighted assets.
How did Basel II enhance Basel I?
By adding guidelines for operational and market risks, improving risk management.
What did Basel III introduce after the 2008 financial crisis?
Stricter capital requirements, leverage ratios, and liquidity requirements.
What is the purpose of Anti-Money Laundering (AML) regulations?
To prevent the misuse of financial systems for illicit activities like money laundering and terrorist financing.
Which organization governs global AML and CTF standards?
The Financial Action Task Force (FATF).
What is the Volcker Rule, and what does it prohibit?
A regulation prohibiting banks from engaging in proprietary trading and limiting risky investments.
What is MiFID II, and where does it apply?
A European regulatory framework to increase transparency and protect investors in financial markets.
What does MiFID II require for transactions?
Near-real-time reporting to improve market transparency and oversight.
What challenges are addressed by regulatory frameworks for electronic banking?
Cybersecurity, fraud, and cross-border transactions.
What is PSD2, and what does it aim to improve?
An EU regulation to enhance competition, innovation, and security in electronic payments.
What is Strong Customer Authentication (SCA) under PSD2?
A requirement for multi-factor authentication to secure online payments.
How does PSD2 enable Open Banking?
By allowing third-party providers access to bank account information with customer consent.
What does the Bank Secrecy Act (BSA) mandate for e-banking platforms?
Monitoring digital transactions and complying with AML regulations.
What is Know Your Customer (KYC)?
A tool to verify customer identity and assess risks of money laundering or terrorism financing.
What is the purpose of Transaction Monitoring Systems?
To detect unusual or suspicious transaction patterns in real-time or batch reviews.
How does AML Compliance Software support banks?
By automating suspicious activity detection and generating reports.
What is a Risk-Based Approach (RBA) in compliance?
A strategy categorizing customers by risk level for enhanced due diligence.
Why are Internal Audits and Compliance Reviews essential?
To evaluate adherence to regulatory standards and identify gaps.
What does Sanctions Screening involve?
Checking transactions against international sanctions lists to avoid penalties.
What are Regulatory Reporting Systems used for?
Automating the generation and submission of reports to regulatory bodies.
How do Cybersecurity and Data Protection Tools ensure compliance?
By preventing data breaches and ensuring compliance with data protection regulations.
Why are Employee Training and Awareness Programs important?
To educate bank staff on compliance policies and regulatory requirements.
What was the key regulatory failure in the Wells Fargo scandal?
Lack of internal controls leading to the creation of fraudulent accounts.
What consequences did Wells Fargo face after the scandal?
$3 billion in fines, loss of customer trust, and stricter consumer protection regulations.
What issue was central to the Danske Bank money-laundering scandal?
Weak internal controls allowing €200 billion in suspicious transactions.
What reforms followed the Wirecard scandal in Germany?
Stricter auditing and compliance measures for fintech companies.
What does Enhanced Due Diligence (EDD) focus on?
Thorough reviews of high-risk customers to mitigate financial crime risks.
How do real-time Transaction Monitoring Systems aid compliance?
By flagging large or suspicious transaction patterns for further investigation.
What is the role of Customer Due Diligence (CDD)?
Verifying identities and monitoring risks in customer activities.
What is the significance of sanctions lists in compliance?
They prevent financial institutions from transacting with blacklisted entities.
What is the focus of capital adequacy requirements under Basel Accords?
Ensuring banks have enough reserves to absorb potential losses.
Why are leverage ratios important in Basel III?
To prevent banks from excessive borrowing that may lead to systemic risks.
What does liquidity management ensure in Basel III?
That banks have enough liquid assets to meet short-term obligations.
What risks do AML and CTF regulations specifically target?
Money laundering and financing of terrorist activities.
How do strong internal controls benefit financial institutions?
By reducing risks of fraud, regulatory breaches, and financial losses.
