Small and Tier 3 Regs Flashcards
National Bank is headquartered in Colorado and has branches in Nebraska and Wyoming that it acquired two years ago. Each year the federal regulatory agencies publish the host state loan-to-deposit ratios for each state, which are used to determine if banks with interstate branches are in compliance with the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. To comply with the Act, the National Bank must:
A. Have a loan-to-deposit ratio in each state that equals or exceeds the published ratio for the state in which the branches are located
B. Have an average loan-to-deposit ratio for all combined offices of the National Bank in all states that equals or exceeds the published ratio for the state in which the bank’s headquarters is located
C. Have a loan-to-deposit ratio in each state that equals or exceeds 50% of the highest loan-to-deposit ratio of any host state in which the bank has a branch
D. Have a loan-to-deposit ratio in each state that equals or exceeds 50% of the loan-to-deposit ratio of each host state
D. Have a loan-to-deposit ratio in each state that equals or exceeds 50% of the loan-to-deposit ratio of each host state
The correct statement of the requirements of the Interstate Branching and Banking Efficiency Act is answer D. National Bank must demonstrate that each of its branches in Nebraska and Wyoming has a loan-to-deposit ratio exceeding 50% of the published loan-to-deposit ratio in each of the host states (Nebraska and Wyoming). Answer A does not mention the 50% requirement; it suggests that the ratio be 100% of the published ratio. Answer B mentions an average in all states, which is incorrect. Answer C refers to the highest loan-to-deposit ratio, which is also incorrect.
The bank has received complaints recently involving small errors in account balances that disadvantage customers. These errors usually result from transposition errors or similar mathematical problems where incorrect deposit amounts are recorded. The bank currently has a policy that discrepancies under $1.00 are ignored. What is the BEST response to this problem in order to comply with the Interagency Guidance on Deposit Reconciliation Practices?
A. Eliminate the $1.00 threshold and change it to $0, such that depositors are never put in a position where they could lose any funds
B. Change the $1.00 threshold to $.10 so that depositors are never put in a position where their deposits are credited for less than $.10 of the actual figure
C. Conduct a review of all deposits made over the last 12 months to determine if there were any discrepancies of over $1.00 and credit those amounts back to depositors with interest
D. Send a change in terms notice to all depositors notifying them of imposition of the $1.00 threshold if that provision was not part of the original deposit contract
A. Eliminate the $1.00 threshold and change it to $0, such that depositors are never put in a position where they could lose any funds
The Interagency Guidance on Deposit Reconciliation has no threshold below which customers need not be made whole; even a $1.00 or $.10 threshold is too high if customers end up on the short end of a miscalculated deposit account balance. Sending a change in terms notice of the $1.00 threshold would be a mistake, since there should be no threshold at all.
A compliance professional learns that the bank had made payments to various foreign government officials over the last few years. What is the BEST way to respond to this issue in order to determine whether any of the payments were made in violation of the Foreign Corrupt Practices Act?
A. Determine whether any of the payments were made with corrupt intent
B. Determine whether any of the payments were made in furtherance of a license or permit to operate in a foreign country
C. Determine whether any of the payments were made directly to the foreign government officials, or whether they were made through an intermediary
D. Determine whether any of the payments were made in U.S. dollars or in foreign currency
A. Determine whether any of the payments were made with corrupt intent
For a payment to a foreign official to be in violation of the FCPA, it must be made with corrupt intent. Payments paid for legitimate licenses or similar requirements are acceptable. It does not matter if payments are made directly or through intermediaries, or in what currency.
Your bank receives a federal agency administrative order requiring the bank to produce records pertaining to a customer. The bank is entitled to reimbursement from the federal agency under Regulation S, UNLESS:
A. The records pertain only to an individual customer
B. The records are requested by the agency in connection with an investigation of the financial institution
C. The customer is not informed of the request in advance
D. The records are stored electronically
B. The records are requested by the agency in connection with an investigation of the financial institution
Regulation S provides that the bank may recover the costs of procuring records requested by a federal agency in connection with a customer’s financial records, not the bank’s situation. If the agency is requesting records pursuant to an investigation of the institution itself, Regulation S does not apply. Regulation S does indeed apply to records pertaining to an individual customer, whether or not the records are requested in advance, and whether or not the records are stored electronically.
The bank has recently acquired another institution that also houses a registered broker-dealer of securities. The bank currently doesn’t maintain any sort of broker-dealer or offer any securities-related products or services, but it does wish to begin offering them through the acquired institution’s relationship. The compliance officer is asked by the bank’s Board of Directors how this new relationship must be managed. Under the Exceptions from Broker-Dealer Requirements rule (Regulation R), what must be in place for the bank to offer securities to its customers through its acquired broker-dealer?
A. Permission from the bank’s primary federal regulator
B. Permission from the Securities and Exchange Commission (SEC)
C. A contractual or other written arrangement with the broker-dealer under which the broker-dealer offers brokerage services to the bank’s customers
D. A contractual or other written agreement with the broker-dealer under which the bank is permitted to offer brokerage services to the bank’s customers utilizing bank employees
C. A contractual or other written arrangement with the broker-dealer under which the broker-dealer offers brokerage services to the bank’s customers
Under Regulation R, when a bank operates a registered broker-dealer, there must be a contractual or other written agreement with the broker-dealer for the broker-dealer to offer brokerage services to the bank’s customers, rather than the bank’s employees. Brokerage employees must be properly licensed to offer applicable brokerage products and services. Permission from the bank’s regulator or the SEC is not required.
What card types are subject to the Durbin Amendment?
A. Debit cards
B. Credit cards
C. Debit & credit cards
A. Debit cards
What is the interchange fee limit on debit cards?
A. 15 cents, plus 5 basis points (0.05%) of the transaction amount, plus 1 cent
B. 21 cents, plus 10 basis points (0.1%) of the transaction amount, plus 1 cent
C. 21 cents, plus 5 basis points (0.05%) of the transaction amount, plus 1 cent
D. 15 cents, plus 5 basis points (0.05%) of the transaction amount, plus 2 cents
C. 21 cents, plus 5 basis points (0.05%) of the transaction amount, plus 1 cent
The penny can be charged if the issuer (the bank) has proper fraud prevention requirements and controls within the bank.
This cap is only applicable to banks with $10B or more in assets.
The compliance officer is tasked with determining how a recent change to the Interchange Fees regulation (Regulation II) will impact the bank. The change involves an increase in the allowable interchange fee a bank may assess. Last year the bank had $5 billion in assets, had over 1 million debit card transactions, 500,000 credit card transactions, and had 125,000 debit cards outstanding. How should the compliance officer BEST respond to the impending change?
A. No action is necessary, as the bank does not have enough debit card transactions to qualify for Regulation II’s limitation on interchange fees
B. No action is necessary, as the bank is not bound by Regulation II’s limitation on interchange fees due to its asset size
C. Study the revised calculation and inform affected business lines of the new fee calculation
D. Determine how much income will be generated by the new calculation and higher allowed interchange fee amount
B. No action is necessary, as the bank is not bound by Regulation II’s limitation on interchange fees due to its asset size
Regulation II’s debit card interchange fee restrictions on the maximum fee that may be assessed apply to institutions with over $10 billion in assets. The rule is not predicated on the number of debit or credit card transactions, or how many debit cards are outstanding. These regulatory changes are not applicable to this bank, as its asset size is not $10 billion.
A non-resident alien (NRA) customer provided a valid IRS Form W-8BEN without including a TIN. During the recertification process, the customer did not return a completed certification. What is the bank’s responsibility?
A. The bank must implement backup withholding.
B. The bank must implement foreign-person withholding.
C. The bank must close the customer’s account under the CIP rules and regulations.
D. The bank has satisfied its responsibility by sending the required solicitation to the NRA requesting a tax recertification.
A. The bank must implement backup withholding.
What are the meanings of the abbreviations used in IRS form titles?
A. INT / International; OID / Original Interest Discharge; MISC / Miscellaneous; C / Cancellation; S / Sale of Real Estate; R / Real Estate; BEN / Beneficiary
B. INT / Interest; OID / Original Issue Discount; MISC / Miscellaneous; C / CEO or Controlling Party; S / Sale of Real Estate; R / Retirement Accts; BEN / Beneficiary
C. INT / Interest; OID / Original Issue Discount; MISC / Miscellaneous; C / Charge-Off; S / Statement; R / Retirement Accts; BEN / Beneficiary
D. INT / Interest; OID / Original Issue Discount; MISC / Miscellaneous; C / Cancellation; S / Sale of Real Estate; R / Retirement Accts; BEN / Beneficiary
D. INT / Interest; OID / Original Issue Discount; MISC / Miscellaneous; C / Cancellation; S / Sale of Real Estate; R / Retirement Accts; BEN / Beneficiary
When conducting an audit of IRS tax compliance procedures, you should select a sample of which of the following forms?
A. 1099A
B. CTR Form 104
C. 17 F-IX-A
D. FFIEC-004
A. 1099A
1099A: Acquisition of an interest in property that is security for a debt (Payments to customers, rather than interest coming to the bank)
CTR Form 104: Currency Transaction Report
17-F-IX-A: Nonsense
FFIEC-004: Report of Indebtedness of Executive Officers
Which of the following procedures BEST determines whether a bank is in compliance with IRS regulations regarding deposit accounts?
A. Preparation of a computer printout showing TINs for all corporations with average balances in excess of $10,000 a month
B. Analysis of all signature cards to assure that at least two persons are authorized to sign checks, and that their TINs are on the cards
C. Analysis of a bank’s last report on Form 1097C-1, and determination of whether follow-up reports have been filed within 60 days of the date of filing
D. Determination of whether TINs are properly requested for all new accounts opened
D. Determination of whether TINs are properly requested for all new accounts opened
The compliance professional has been selected to establish policy, procedures, and guidelines for the bank’s business units to ensure compliance with the Health Information Technology for Economic and Clinical Health Act (HITECH Act). Which of the following activities should be incorporated into the bank’s program to ensure compliance?
A. Medical lockboxes or medical banking services provided to healthcare providers
B. Providing loans to hospitals and similar healthcare providers
C. Obtaining credit reports on consumers that contain personally-identifiable health information
D. Providing safe deposit boxes to doctors and nurses
A. Medical lockboxes or medical banking services provided to healthcare providers
The provisions of the HITECH Act that apply to banks have to do with medical-type services banks provide, such as medical lockbox or similar banking services. Thus, those services should be incorporated into the bank’s compliance program. Loans to hospitals or healthcare providers and providing safe deposit boxes to doctors and nurses are not medical banking services covered under the provisions of the HITECH Act. Obtaining credit reports on consumers that contain health information may be problematic under Regulation FF, but not the HITECH Act.
The bank has decided to begin offering a full range of non-deposit investment products to retail customers. Your FIRST step should be to:
A. Review the state insurance licensing requirements
B. Develop a program to obtain Series 6 & 7 licenses for the sales staff
C. Develop new account forms that include processes to determine suitability
D. Review the Interagency Statement on the Retail Sale of Nondeposit Investment Products
D. Review the Interagency Statement on the Retail Sale of Nondeposit Investment Products
When first entering into the world of non-deposit investment products, there are a host of legal and regulatory requirements. The wisest first step would be to familiarize yourself with those regulatory requirements, and the Interagency Statement on the Retail Sale of Nondeposit Investment Products is the place to start. Reviews of state insurance licensing requirements and developing a program to obtain proper licenses for sales staff may be necessary, but they may not, depending on what is being offered. Those would be secondary tasks to reviewing the Interagency Statement. Finally, developing a form to determine suitability would likely be a violation, since unlicensed staff should not be determining suitability for any particular nondeposit product.
Under the Interagency Statement on Retail Sales of Nondeposit Investment Products, the required disclosures can be provided to the bank’s customer in all of the following ways EXCEPT:
A. Orally during sales presentations
B. Orally and in writing at the time an investment account is opened
C. In advertisements and promotional brochures
D. In writing by a teller when referring a customer to the investment sales area
D. In writing by a teller when referring a customer to the investment sales area
The bank has recently decided to engage in outbound telemarketing services to potential customers to advertise various credit card and personal loan products. The marketing department will be hiring several part-time employees to make the calls. What must the bank monitor to ensure compliance with the Telemarketing Sales Rule (TSR)?
A. Nothing, since the Telemarketing Sales Rule does not apply directly to activities by bank employees
B. The bank must monitor the conversations the telemarketer employees have with consumers to ensure no unfair or deceptive statements are made
C. Nothing, since the Telemarketing Sales Rule does not apply to solicitations for loan products; it applies only to telemarketing of physical goods
D. The bank must monitor that all phone numbers that are called are screened in advance to ensure they don’t appear on the FTC’s Do-Not-Call list
A. Nothing, since the Telemarketing Sales Rule does not apply directly to activities by bank employees
The TSR does not apply to bank employees conducting outbound telemarketing services. It would apply if the bank had utilized the services of a third party to conduct outbound telemarketing services. It is not dependent on the products marketed, such as loans or physical goods. The TSR does not require monitoring of calls. The TCPA, not the TSR, requires telemarketers to screen numbers against the FTC’s Do-Not-Call list.
A bank may provide services to a non-bank affiliate under contract for fees if:
A. The contract may be cancelled at any time
B. The terms are substantially the same as those prevailing at the time for comparable non-affiliated transactions
C. The bank provides such services exclusively to the non-bank affiliate
D. Prior written regulatory approval is obtained
B. The terms are substantially the same as those prevailing at the time for comparable non-affiliated transactions
Regulation W requires, among many other things, that transactions between affiliated be conducted at substantially the same terms as those that would apply if the entities were not affiliated. Answer B is a correct statement of this requirement. Regulation W contains no requirement that the contract be canceled at any time, nor is prior regulatory approval needed. There is also no requirement that the bank must provide the services exclusively to the non-bank affiliate.
Which of the following are exempt from the requirement under Regulation GG to implement policies and procedures to block illegal transactions?
A. Gateway operators that receive ACH debits from a foreign sender
B. Participants in a money transmitting business
C. Money transmitting business operators
D. Beneficiary bank participant in a wire transfer system
B. Participants in a money transmitting business
The bank made a purpose credit loan to a customer secured by margin stock. Now the customer wants to sell that stock and provide a substitution. The withdrawal and substitution is permitted under which of the following circumstances?
A. The borrower completes a new FR-U-1
B. The loan is converted to an unsecured loan
C. The withdrawal and substitution will not cause the existing loan to exceed the maximum 50% loan to collateral value
D. The withdrawal/substitution is not permitted
C. The withdrawal and substitution will not cause the existing loan to exceed the maximum 50% loan to collateral value
Regulation U requires that the minimum loan amount not exceed the maximum 50% loan to collateral value, either at origination of purpose credit or when collateral is withdrawn and substituted. The collateral may indeed be withdrawn and substituted if this requirement is met. A new form FR U-1 may be required, but is not essential in all instances. If the loan is converted into an unsecured loan, there would be no substitution of collateral.
Under Regulation GG, banks should:
A. Notify all consumer accountholders that internet gambling is prohibited under the Act
B. Identify all customers that conduct internet gambling and notify them of the Act’s prohibitions
C. Provide a written notice to all commercial accountholders that their accounts may not be used for illegal internet gambling
D. Provide a written notice to all credit card accountholders informing them that they may not use their credit cards to conduct illegal gambling
C. Provide a written notice to all commercial accountholders that their accounts may not be used for illegal internet gambling
The regulation is flexible regarding how the communication is made and what information it must include. Banks must have written policies and procedures that demonstrate the steps they are taking to prevent a commercial entity acting as an illegal online gambling enterprise from opening an account for conducting illegal gambling transactions.
A financial institution will be in compliance with the blocking requirements of Regulation GG if:
A. It monitors debit card transactions to block any Internet gambling transactions
B. It notifies all customers that Internet gambling transactions are illegal
C. It restricts transactions to accept only those not originated on the Internet
D. It relies on compliance procedures implemented by the payment system operator
D. It relies on compliance procedures implemented by the payment system operator
Financial institutions may relay on the policies and procedures of payment systems and networks that are reasonably designed to block prohibited transactions.
In practice, the card system operators will assign merchant code numbers to transactions conducted via the Internet with merchants identified as accepting wagers. Banks issuing debit and credit cards may then opt to block transactions with those certain codes.
Under Regulation GG which is a responsibility of regulated depository institutions?
A. Review check transactions on consumer accounts that regularly have large checks deposited
B. Screen ACH transactions of commercial accounts
C. Implement due diligence procedures for new commercial accounts
D. Monitor wire transfer instructions
C. Implement due diligence procedures for new commercial accounts
A financial institution that is a non-exempt participant in a payment system must have policies and procedures to conduct due diligence on new commercial accounts to be deemed to be in compliance with Regulation GG. Institutions are not required to monitor individual transactions.
Bank policies and procedures for check collection must include what procedure to follow when a bank has actual knowledge that checks for restricted transactions have been received from a bank customer:
A. Procedures for determining the action to take, including when the account should be closed
B. Procedures for determining when all checks on the account must be monitored
C. Procedures for circumstances when only certified checks may be accepted
D. Procedures for circumstances when no checks on foreign accounts may be accepted
A. Procedures for determining the action to take, including when the account should be closed
If a bank has actual knowledge that restricted transactions have occurred its policies should include procedures for determining what action should be taken. The regulation does not require specific actions a bank must take when this occurs, but does require the bank to establish its own policies and procedures that describe the action it will take in this event.
Lenders must report interest on Form 1098 when the total interest exceeds what amount?
A. $10
B. $600
C. $3,000
D. $5,000
B. $600
According to Retail Non-deposit Investment Products guidance, an investment representative is NOT required to disclose to a retail customer whether the investment:
A. Product is not FDIC-insured.
B. Product is not a deposit or other obligation of the institution.
C. Risk includes the possible loss of the principal invested.
D. Representative will earn a commission on the sale of the investment product.
D. Representative will earn a commission on the sale of the investment product.
Must be included in the disclosure:
Not a Deposit
Not FDIC Insured
Not Guaranteed by any Federal Gov’t Agency
May Lose Value
No Bank Guarantee
A bank regularly makes participation loans to its affiliate banks, all of which are 100% owned by the bank holding company. A compliance professional is asked to review the bank’s Regulation W policy. The policy should include a provision indicating that the bank may NOT participate in such loans with its affiliate banks under which circumstance?
A. If the loan is deemed a low-quality asset
B. If more than 25% of a loan will be participated to an affiliate
C. If the bank shares common officers or directors with the affiliate
D. Unless the bank’s primary supervisory agency approves such participation
A. If the loan is deemed a low-quality asset
Limits on Covered Transactions:
- 10% of capital any affiliate
- 20% of capital all affiliates
- No low-quality assets
Must be safe and sound banking practice (arms-length)
Collateral for loans
- 100% if U.S. Government obligations or segregated deposits
- 110% if state obligations
- 120% if other debt instruments
- 130% if real or personal property
A mortgage company affiliate of a bank is considering selling a portion of its portfolio to the bank. Under Regulation W, when is this sale NOT permissible?
A. Loans are of low quality.
B. The mortgage company and bank share common officers or directors.
C. Aggregate total of the sale exceeds 10% of the mortgage company’s capital and surplus.
D. Aggregate total of the sale with all other affiliate sales exceeds 20% of the bank’s capital and surplus.
A. Loans are of low quality.
The bank is limited to 10% of its unimpaired capital surplus, number comes from the call report, of its transactions between a bank and any one affiliate, and 20% of that same number for all the covered transactions between the banks and all its affiliates. However, there are exceptions here for financial subsidiaries, which is how banks can have wholly-owned subsidiaries, like mortgage companies and credit card companies.
Under the Children’s Online Privacy Protection Act of 1998, a “child” is defined as an individual under what age?
A. 13 years
B. 16 years
C. 18 years
D. The age of contractual obligation as defined by the individual’s state of address
A. 13 years
Applies to children the website operator knows, or should know, are from children under the age of 13
