Questions and Answers
What is the primary purpose of payment services?
How often must a company produce an internal controls report as required by SOX?
What is the main goal of penalties for defrauding securities investors?
What is the first step in the settlement process?
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What type of reach does the UK Bribery Act provide?
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What is included in an internal controls report as required by SOX?
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What is the primary focus of payment services?
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What is the purpose of reconciliation in the settlement process?
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What is the significance of the Extraterritorial Reach provision in the context of anti-bribery standards?
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What is one of the key changes made to the 5th Anti-Money Laundering Directive (5AMLD) that came into force in June 2021?
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What is a possible disciplinary action that exchange operators can take against a registered person?
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What is counterparty risk in financial transactions?
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How do regulators approach Fintech?
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What is a possible application of artificial intelligence (AI) in financial services?
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Why do regulators implement regulatory sandboxes for Fintech?
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What is a key objective of regulators in the Fintech sector?
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What is the primary role of compliance in the development of new business?
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What factors do regulators use to assess risks?
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What type of information can be withheld when providing information?
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What is the purpose of filing a Suspicious Activity Report (SAR)?
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What is the primary purpose of financial services firms regarding money laundering and terrorist financing?
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What is money laundering?
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What is terrorist financing?
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What is a key difference between terrorist financing and other money laundering activities?
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What is a characteristic of terrorist financing?
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What is the primary goal of the Financial Action Task Force (FATF)?
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What is the first stage of the money laundering process?
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What happens during the layering stage of money laundering?
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Why is the layering stage considered the biggest risk for financial services firms?
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What is the main function of the United Nations Office on Drugs and Crime (UNODC)?
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How does the International Monetary Fund (IMF) contribute to the fight against money laundering?
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What is the purpose of the World Bank's Stolen Asset Recovery Initiative (StAR)?
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What is the main objective of the FATF?
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What is the significance of the IMF's trust fund for AML/CFT?
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What is the challenge posed by jurisdictional differences in AML efforts?
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What are 'predicate offences' in the context of financial crime?
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How do financial institutions detect money laundering activities?
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What is the role of the FATF in combating money laundering and terrorist financing?
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What is a Politically Exposed Person (PEP)?
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How does the IMF support AML/CFT regimes?
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Study Notes
Payment Services
- Payment services enable cash to be placed on a payment account and allow operations required for operating a payment account, including cash withdrawals and payment transactions.
Internal Controls Report
- Companies are required to produce an internal controls report annually, which includes an assessment of the effectiveness of internal control over financial reporting and an attestation from the external auditor.
Punishment for Defrauding Securities Investors
- Defrauding securities investors can result in severe penalties, including fines, imprisonment, and other legal actions, depending on the jurisdiction.
Settlement Process
- The settlement process involves:
- Trade execution
- Clearing, where trade details are confirmed
- Settlement, involving the exchange of securities and payment
- Reconciliation to ensure details match between trading parties
UK Bribery Act
- The UK Bribery Act provides extraterritorial reach, covering bribery offenses committed outside the UK if they involve UK companies or individuals.
5AMLD Changes
- The additional changes made to 5AMLD that came into force in June 2021 include:
- Enhanced transparency on company ownership
- Stricter regulation of virtual currencies
- Broader scope for monitoring financial activities
- Improved cooperation and information sharing among financial intelligence units
Disciplinary Actions
- Exchange operators can take four forms of disciplinary action against registered persons:
- Fines
- Suspension of trading privileges
- Expulsion from the exchange
- Censure or formal reprimands
Counterparty Risk
- Counterparty risk is the risk that the other party in a financial transaction may default on their obligations, inherent in trading, lending, and derivative transactions.
Fintech Regulation
- Regulators approach Fintech by promoting innovation while ensuring consumer protection, financial stability, and market integrity, through measures such as regulatory sandboxes and guidance on compliance.
Artificial Intelligence Applications
- Possible applications of artificial intelligence (AI) in financial services include:
- Various use cases in the financial industry
Compliance in New Business Development
- Compliance plays a role in the development of new business by advising on regulatory requirements and ensuring compliance with applicable laws and regulations.
Risk Assessment
- Regulators use two factors to assess risks:
- Likelihood of occurrence
- Potential impact of the risk
Confidential Information
- Confidential or privileged information, such as client data or proprietary business information, can be withheld when providing information.
Suspicious Activity Report (SAR)
- A SAR is a document filed with the Financial Intelligence Unit to report suspicious transactions that may be related to money laundering or other financial crimes.
Money Laundering and Terrorist Financing Prevention
- The primary purpose of financial services firms regarding money laundering and terrorist financing is to reduce the risk that their services are used for these purposes.
Money Laundering Definition
- Money laundering involves turning "dirty money" into "clean money" by introducing criminally derived cash into the financial system, moving it around to conceal its source, and integrating it into the legitimate financial system.
Terrorist Financing
- Terrorist financing relates to the financial support of organizations or groups that perform terrorist acts, including any financial transactions undertaken to facilitate such acts.
Key Differences between Terrorist Financing and Money Laundering
- Terrorist financing often involves smaller amounts of money, and the source of funds may be legitimate, making identification and tracking more difficult.
Financial Action Task Force (FATF)
- FATF issues recommendations to set minimum standards for action in different countries to ensure consistent international efforts against money laundering and terrorist financing.
Stages of Money Laundering
- The three stages of money laundering are:
- Placement: introducing criminally derived cash into the financial system
- Layering: moving money around to conceal its source
- Integration: integrating laundered money into the legitimate financial system
Layering Stage Risks
- The layering stage is considered the biggest risk for financial services firms, as any transaction that exchanges one asset for another or changes the registered owners of an asset could be part of layering.
United Nations Office on Drugs and Crime (UNODC)
- UNODC assists member states in combating illicit drugs, crime, and terrorism by implementing measures against money laundering and the financing of terrorism.
International Monetary Fund (IMF) Role
- IMF contributes to the fight against money laundering by sharing information, developing common approaches to issues, promoting desirable policies and standards, and conducting AML/CFT assessments.
World Bank's Stolen Asset Recovery Initiative (StAR)
- StAR sets international standards, assesses compliance, and provides guidance on combating money laundering and terrorist financing.
FATF's 2012 Update
- The 2012 update combined money laundering and terrorist financing standards, adding requirements like tax crimes as predicate offenses and enhanced due diligence.
IMF's AML/CFT Support
- IMF supports AML/CFT regimes through technical assistance, training, and assessments to help countries improve their AML/CFT frameworks.
Jurisdictional Differences Challenge
- Different countries have varying levels of compliance and enforcement, complicating international AML/CFT efforts.
Predicate Offences
- Predicate offences are crimes that generate proceeds which can then be laundered, such as fraud, embezzlement, and corruption.
IMF's Trust Fund for AML/CFT
- The trust fund finances technical assistance projects aimed at strengthening global AML/CFT regimes.
Financial Institutions' Role in Detecting Money Laundering
- Financial institutions detect money laundering activities through systems and procedures that look for patterns or unusual activities within transactional data.
Indicators of Potential Money Laundering
- Indicators of potential money laundering include large cash transactions, frequent international transfers, and complex company structures.
Politically Exposed Person (PEP)
- A PEP is an individual who holds a prominent public position, posing a higher risk for involvement in bribery and corruption.
FATF Compliance Assessment
- FATF assesses compliance with its recommendations through mutual evaluations and peer reviews of member countries.
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Learn about the definition of payment services, including cash placement, operations, and transactions.