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IAB Professional Practice practice questions

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Question 1Anti-Money Laundering Supervision

Under the risk-based approach to anti-money laundering supervision, what is the primary purpose of assessing a firm's money laundering risk profile?

  1. To guarantee that no money laundering can occur within the firm
  2. To determine the exact tax liability of each customer
  3. To replace the need for customer due diligence procedures
  4. To allocate supervisory resources in proportion to the risks identified Correct answer.

Explanation

The risk-based approach requires supervisors to understand where money laundering risk is highest and to direct attention, intensity and frequency of supervision accordingly. It does not eliminate risk entirely nor substitute for customer due diligence, which remains an independent obligation. Its core logic is proportionality between identified risk and supervisory effort.

Question 2Anti-Money Laundering Supervision

Which body is the global standard-setter that issues the Forty Recommendations on anti-money laundering and terrorist financing?

  1. The Basel Committee on Banking Supervision
  2. The Financial Action Task Force Correct answer.
  3. The World Trade Organization
  4. The International Organization of Securities Commissions

Explanation

The Financial Action Task Force is the intergovernmental body that sets the international standards for combating money laundering and terrorist financing, known as the Recommendations. Other bodies issue sector-specific guidance but do not own the global AML standard. National supervisors then implement these standards through local rules.

Question 3Anti-Money Laundering Supervision

A supervisor is designing the intensity of oversight for a newly licensed payments firm with high-risk cross-border customers. Which supervisory response best reflects the risk-based approach?

  1. Apply enhanced scrutiny and more frequent information requests to that firm Correct answer.
  2. Rely solely on the firm's self-certification of low risk
  3. Apply identical oversight to every firm regardless of its customer base
  4. Defer all oversight until the firm has operated for five years

Explanation

Where a firm presents higher risk, the supervisor should intensify supervision through enhanced scrutiny, more frequent reporting and closer engagement. Uniform treatment ignores the differing risk profiles that the framework is designed to capture. Self-certification alone is insufficient evidence of effective controls.

Question 4Anti-Money Laundering Supervision

What is the main objective of a national money laundering risk assessment conducted by a jurisdiction's authorities?

  1. To set the interest rates charged by financial institutions
  2. To calculate the profitability of individual licensed firms
  3. To identify and prioritise the highest threats and vulnerabilities across the economy Correct answer.
  4. To approve the marketing materials of financial firms

Explanation

A national risk assessment examines the country's exposure to money laundering and terrorist financing threats and the weaknesses in its defences, so that resources can be prioritised. It informs policy and supervisory planning at sector level. It does not perform commercial or monetary policy functions.

Question 5Anti-Money Laundering Supervision

A supervisor finds that a bank's transaction monitoring system generates excessive alerts that staff never clear. What supervisory concern does this most directly raise?

  1. The monitoring system is not operating effectively as a detection control Correct answer.
  2. The bank has exceeded its capital adequacy requirement
  3. The bank is over-reporting suspicious activity to the authorities
  4. The bank has set its risk appetite too low for its business

Explanation

A monitoring system that produces unreviewed alerts provides no real detection capability, because potential suspicious activity is never assessed or escalated. Effective operation requires timely review, documentation and escalation of alerts. Volume of alerts alone is not evidence of effectiveness.

Question 6Anti-Money Laundering Supervision

Which of the following is a core element of a firm's anti-money laundering compliance programme that supervisors typically examine?

  1. A published annual advertising budget
  2. A list of the firm's largest shareholders
  3. The firm's staff canteen arrangements
  4. A designated compliance officer with responsibility for AML Correct answer.

Explanation

Supervisors expect firms to appoint a person or function with clear responsibility for AML compliance and to give that role adequate authority and resources. This is a standard component of an effective programme alongside policies, training and independent testing. The other items are unrelated to AML controls.

Question 7Anti-Money Laundering Supervision

During an inspection a supervisor requests the records of the firm's independent AML audit. The firm states that the audit was performed by the same team that designed the AML controls. Why is this a deficiency?

  1. Independent testing must be carried out by parties free from influence over the controls being reviewed Correct answer.
  2. Independent testing must be repeated every month by law
  3. Independent testing must always be outsourced to a foreign regulator
  4. Independent testing is optional for firms with a compliance officer

Explanation

The value of independent testing depends on the reviewer's objectivity, so the testers must not be responsible for designing or operating the controls under review. Self-review by the design team creates a conflict of interest and weakens assurance. Frequency and outsourcing to a foreign regulator are not the governing requirements.

Question 8Anti-Money Laundering Supervision

What does the term 'supervisory college' refer to in cross-border AML supervision of a financial group?

  1. A training academy for new AML analysts
  2. A forum of supervisors from the jurisdictions where the group operates coordinating oversight Correct answer.
  3. A panel that approves customer account openings
  4. A committee that sets global accounting standards

Explanation

A supervisory college brings together the supervisors of the different jurisdictions in which a group operates so that they can share information and coordinate their oversight of the group as a whole. It addresses the challenge of supervising cross-border groups consistently. It is not a training body, standard-setter or account approval panel.

Question 9Anti-Money Laundering Supervision

A supervisor discovers that a firm has failed to apply enhanced due diligence to a politically exposed person. Which supervisory action is most consistent with an escalating enforcement approach?

  1. Take no action because the customer was later identified
  2. Immediately revoke the firm's licence without any inquiry
  3. Issue a formal warning and require a remediation plan with a deadline Correct answer.
  4. Refer the matter to the firm's marketing department

Explanation

Enforcement should be proportionate and escalate according to the seriousness and persistence of the failure. A formal warning coupled with a binding remediation plan is a typical first proportionate step where the breach is identified and correctable. Immediate licence revocation without inquiry would be disproportionate at a first instance.

Question 10Anti-Money Laundering Supervision

Which statement best describes the role of a financial intelligence unit in the AML framework?

  1. It prosecutes money laundering cases in criminal courts
  2. It writes the accounting standards used by listed companies
  3. It licenses banks and sets their capital requirements
  4. It receives and analyses suspicious transaction reports and disseminates intelligence Correct answer.

Explanation

A financial intelligence unit is the national centre that receives suspicious transaction reports, analyses them and shares the resulting intelligence with law enforcement and other authorities. It is distinct from the prudential supervisor and from the prosecuting authority. Its function is intelligence gathering and analysis rather than licensing or prosecution.

Question 11Anti-Money Laundering Supervision

A supervisor is reviewing a firm's risk assessment methodology. The firm assigns every customer the same risk rating regardless of profile. What is the key weakness?

  1. The methodology is too costly to operate across a large customer base
  2. The methodology uses too many risk factors to be practical
  3. The methodology does not differentiate risk and so cannot drive proportionate controls Correct answer.
  4. The methodology relies too heavily on senior management judgement

Explanation

A risk assessment must distinguish between higher and lower risk customers so that controls such as due diligence intensity can be calibrated accordingly. Uniform ratings make the assessment meaningless and prevent enhanced measures from being targeted. Cost, judgement and factor count are not the fundamental flaw described.

Question 12Anti-Money Laundering Supervision

Which of the following best describes 'beneficial ownership' identification as a supervisory expectation?

  1. Identifying the natural persons who ultimately own or control a customer Correct answer.
  2. Identifying the software vendor used for record-keeping
  3. Identifying the bank branch where the account was opened
  4. Identifying the marketing agent who introduced the customer

Explanation

Supervisors expect firms to look through legal structures to identify the natural persons who ultimately own or control a customer, because concealment of ownership is a common laundering technique. This requires understanding ownership chains and control arrangements. Branch, introducer and vendor details do not reveal ultimate ownership.

Question 13Anti-Money Laundering Supervision

A supervisor notes that a firm's AML training is delivered once at induction and never repeated. What supervisory finding is most appropriate?

  1. Training is not ongoing and staff may lack awareness of evolving risks Correct answer.
  2. Training frequency is irrelevant to AML effectiveness
  3. Training should be delivered only to senior managers
  4. Training at induction is sufficient for all staff grades

Explanation

AML training must be ongoing so that staff remain alert to new typologies, regulatory changes and their reporting obligations. A one-off induction session leaves knowledge to decay and cannot address emerging risks. Frequency is therefore directly relevant to the effectiveness of the control.

Question 14Anti-Money Laundering Supervision

A supervisor is assessing whether a firm's suspicious activity reporting is effective. Which indicator most strongly suggests an effective reporting culture?

  1. Staff escalate concerns promptly and reports are supported by documented reasoning Correct answer.
  2. The firm files the highest possible number of reports each quarter
  3. Reports are prepared only after a supervisor requests them
  4. The firm files no reports at all to avoid regulatory attention

Explanation

Effective reporting depends on timely internal escalation and well-documented reasoning that supports the suspicion, not on raw volume. Quality and timeliness demonstrate that staff understand their obligations and that the process works. Filing no reports, or only on request, indicates a broken reporting culture.

Question 15Anti-Money Laundering Supervision

What is the purpose of a supervisory risk model that scores firms on inherent risk and control quality?

  1. To determine the salaries of compliance staff
  2. To calculate the exact amount of money laundered in the sector
  3. To help prioritise which firms receive closer supervisory attention Correct answer.
  4. To replace all on-site inspections with automated scoring

Explanation

Risk models combine inherent risk factors with the assessed quality of controls to produce a relative ranking that guides supervisory planning. They support prioritisation and resource allocation but cannot measure actual laundering volumes precisely. They complement, rather than replace, on-site inspection and other supervisory tools.

Question 16Anti-Money Laundering Supervision

Which of the following is an example of a preventive measure that supervisors expect firms to apply to customers?

  1. Conducting customer due diligence proportionate to assessed risk Correct answer.
  2. Sponsoring local sporting events
  3. Reducing the number of staff in the compliance team
  4. Publishing the firm's quarterly profit figures

Explanation

Customer due diligence is a core preventive measure, and its intensity should be proportionate to the assessed risk of the relationship. It enables the firm to know who its customers are and to detect unusual activity. The other options are commercial or organisational choices unrelated to prevention.

Question 17Anti-Money Laundering Supervision

A supervisor finds that a firm's record of customer identification documents is incomplete for several high-risk accounts. Which risk does this most directly create?

  1. The firm's marketing reach will be reduced
  2. The firm will automatically lose its banking licence
  3. The firm's customers will be entitled to lower fees
  4. The firm cannot demonstrate that it knows the identity of those customers Correct answer.

Explanation

Incomplete identification records mean the firm cannot evidence that it has verified who its customers are, undermining the audit trail that supervisors rely on. This is a record-keeping and due diligence failure that may attract remedial action. It does not automatically trigger licence loss, which would require a separate and proportionate decision.

Question 18Anti-Money Laundering Supervision

What does 'mutual evaluation' mean in the context of the global AML standards?

  1. A bilateral trade agreement between two countries
  2. A court procedure for confiscating criminal assets
  3. A firm's internal review of its own marketing strategy
  4. A peer review process assessing whether a country has implemented the standards effectively Correct answer.

Explanation

Mutual evaluation is the peer review mechanism through which countries are assessed against the global AML standards, including both technical compliance and effectiveness. It produces a public report identifying strengths and deficiencies. It is not a trade agreement, internal review or judicial process.

Question 19Anti-Money Laundering Supervision

A supervisor observes that a firm's senior management rarely discusses AML issues and treats compliance as a back-office function. What governance weakness does this indicate?

  1. A failure to market products effectively
  2. An excess of regulatory reporting to the authorities
  3. A weak compliance culture with insufficient tone from the top Correct answer.
  4. An overinvestment in compliance technology

Explanation

When senior management does not engage with AML and treats it as peripheral, the firm lacks the tone from the top that sustains an effective compliance culture. Governance expectations place responsibility for AML at the most senior level. The scenario does not indicate over-reporting, overinvestment or marketing failure.

Question 20Anti-Money Laundering Supervision

Which of the following best explains why supervisors require firms to apply enhanced due diligence to correspondent banking relationships?

  1. These relationships can be used to move funds across borders with limited transparency Correct answer.
  2. Enhanced due diligence reduces the need for transaction monitoring
  3. Correspondent banks are exempt from all AML obligations
  4. Correspondent relationships always involve domestic retail customers

Explanation

Correspondent banking allows one institution to provide services to another across borders, which can create layered and less transparent fund flows. Enhanced due diligence is therefore required to understand the respondent institution and the nature of the business. It does not exempt firms from monitoring, nor does it replace it.

Question 21Anti-Money Laundering Supervision

A supervisor is deciding whether to take formal action against a firm that self-identified a control gap and reported it promptly with a credible remediation plan. Which principle should guide the decision?

  1. Proportionality, recognising good faith self-reporting and remediation as mitigating factors Correct answer.
  2. Complete immunity for any firm that self-reports
  3. Referral of the matter to the firm's competitors for review
  4. Automatic maximum penalty regardless of the firm's conduct

Explanation

Supervisory responses should be proportionate, and genuine self-identification, prompt notification and credible remediation are recognised as mitigating factors. This encourages firms to detect and disclose problems rather than conceal them. Automatic maximum penalties and complete immunity both ignore the circumstances.

Question 22Anti-Money Laundering Supervision

What is the primary function of a suspicious transaction reporting regime within AML supervision?

  1. To replace customer due diligence with automated alerts
  2. To provide firms with a defence against all civil claims
  3. To allow firms to close customer accounts without notice
  4. To channel intelligence about suspected laundering to the authorities for analysis Correct answer.

Explanation

Suspicious transaction reporting supplies the authorities, typically through the financial intelligence unit, with information about suspected laundering that can be analysed and acted upon. It is an intelligence channel rather than a legal shield or a substitute for due diligence. It also does not authorise account closure without notice.

Question 23Anti-Money Laundering Supervision

A supervisor reviews a firm's policy that permits a customer relationship to continue indefinitely while identification documents remain outstanding. What is the supervisory concern?

  1. The firm is allowing business to proceed before identity is verified, contrary to expected controls Correct answer.
  2. The firm is verifying identity too quickly for high-risk customers
  3. The firm is over-documenting low-risk customers
  4. The firm is applying enhanced due diligence too broadly

Explanation

Firms are generally expected to verify identity before establishing a relationship or before carrying out transactions, with only narrow and time-limited exceptions. Permitting open-ended continuation without verification undermines the control. The concern is under-verification, not excessive or overly rapid verification.

Question 24Anti-Money Laundering Supervision

Which of the following describes the principle of 'information sharing' between supervisors in different jurisdictions?

  1. Supervisors exchange relevant information with counterparts to support effective consolidated oversight Correct answer.
  2. Firms share customer passwords with regulators
  3. Supervisors sell information to commercial data brokers
  4. Firms publish customer data openly on their websites

Explanation

Cross-border supervision depends on supervisors exchanging relevant information with their counterparts, subject to confidentiality and legal safeguards, so that groups can be overseen on a consolidated basis. This supports coordinated action and avoids gaps between jurisdictions. It does not involve public disclosure or commercial sale of data.

Question 25Anti-Money Laundering Supervision

A supervisor finds that a firm outsourced its customer screening to a vendor but never tested whether the screening lists are current. What is the most appropriate supervisory conclusion?

  1. Screening lists never require updating once installed
  2. Outsourcing screening removes the need for any internal controls
  3. The vendor alone is fully responsible and the firm bears no obligation
  4. Outsourcing does not transfer accountability, and the firm has failed to monitor the vendor's performance Correct answer.

Explanation

A firm remains accountable for controls it outsources and must monitor vendor performance, including the currency and completeness of screening data. Outsourcing is a delivery choice, not a transfer of regulatory responsibility. Screening lists change frequently and must be kept current.

Question 26Anti-Money Laundering Supervision

Which body typically sets the international AML standards that national supervisors then implement?

  1. The International Monetary Fund
  2. The Financial Action Task Force Correct answer.
  3. The World Trade Organization
  4. The Basel Committee on Banking Supervision

Explanation

The Financial Action Task Force issues the international standards, known as the Recommendations, that countries commit to implementing through national law and supervisory practice. Other bodies issue related guidance but do not own the global AML standard itself.

Question 27Anti-Money Laundering Supervision

In AML supervision, what does the 'risk-based approach' require of a supervisor?

  1. Requiring firms to exit every high-risk customer segment
  2. Delegating all AML oversight to the firms' external auditors
  3. Applying identical controls to every firm regardless of size
  4. Allocating supervisory resources in proportion to assessed money laundering risk Correct answer.

Explanation

A risk-based approach means supervisory attention and intensity are calibrated to the money laundering and terrorist financing risk that each firm or activity presents. It does not mean uniform treatment or blanket de-risking.

Question 28Anti-Money Laundering Supervision

A supervisor wants to check that a firm's AML controls operate as described in its policies. Which activity directly tests this?

  1. Conducting an on-site inspection with sample transaction testing Correct answer.
  2. Attending the firm's product launch event
  3. Reading the firm's marketing materials
  4. Reviewing the firm's published annual report

Explanation

On-site inspection with sample testing verifies whether written controls are actually applied in practice. Documentary review alone shows intent but not operating effectiveness.

Question 29Anti-Money Laundering Supervision

What is the main purpose of an AML supervisory risk assessment of an individual firm?

  1. To calculate the firm's tax liability
  2. To determine the intensity and frequency of supervisory engagement Correct answer.
  3. To set the firm's customer fee schedule
  4. To rank the firm against competitors for marketing

Explanation

A firm-level risk assessment informs how much supervisory attention the firm should receive, including the frequency and depth of inspections and monitoring. It is an input to supervisory planning rather than a commercial or fiscal exercise.

Question 30Anti-Money Laundering Supervision

Which of the following is a supervisory enforcement measure available when a firm breaches AML obligations?

  1. Issuing a public warning or financial penalty Correct answer.
  2. Setting the firm's dividend policy
  3. Revoking the firm's employees' professional memberships
  4. Amending the firm's customer contracts directly

Explanation

Supervisors typically have a graduated toolkit including warnings, remediation requirements, financial penalties and restrictions on business. These measures aim to correct behaviour and deter non-compliance.

Question 31Anti-Money Laundering Supervision

What does 'customer due diligence' require a firm to establish at the start of a relationship?

  1. The customer's credit score
  2. The customer's employment history for the last decade
  3. The identity of the customer and the nature of the business relationship Correct answer.
  4. The customer's preferred communication channel

Explanation

Customer due diligence requires identifying and verifying the customer and understanding the purpose and intended nature of the relationship. This baseline information supports ongoing monitoring.

Question 32Anti-Money Laundering Supervision

A supervisor finds that a firm keeps no audit trail of who approved a high-risk customer onboarding. Why is this a supervisory concern?

  1. It reduces the firm's marketing reach
  2. It slows down the firm's payment processing
  3. It undermines accountability and reconstructability of decisions Correct answer.
  4. It increases the firm's IT costs

Explanation

Record-keeping supports accountability and allows the firm and supervisor to reconstruct why a decision was taken. Without an approval trail, the firm cannot demonstrate that its risk controls were applied.

Question 33Anti-Money Laundering Supervision

Which term describes the process by which a country's supervisor formally authorises a firm to carry on regulated financial activity subject to AML conditions?

  1. Licensing Correct answer.
  2. Litigation
  3. Liquidation
  4. Leveraging

Explanation

Licensing is the authorisation process through which a supervisor permits a firm to operate and attaches AML conditions to that permission. It gives the supervisor ongoing leverage over the firm's conduct.

Question 34Anti-Money Laundering Supervision

A supervisor is planning a thematic review of how firms in a sector handle high-risk customers. What is the main advantage of a thematic approach over firm-by-firm inspections?

  1. It reveals sector-wide weaknesses and emerging risks Correct answer.
  2. It eliminates the need for any on-site work
  3. It guarantees that no firm will breach AML rules
  4. It replaces the need for a risk assessment

Explanation

Thematic reviews aggregate findings across many firms, allowing the supervisor to identify common weaknesses and emerging risks and to issue sector-wide guidance. They complement rather than replace individual inspections.

Question 35Anti-Money Laundering Supervision

A supervisor observes that a firm's AML compliance officer reports to the head of sales and has no direct access to the board. What is the most likely supervisory conclusion?

  1. The compliance officer is over-resourced
  2. The firm has an ideal governance structure
  3. The firm has fully implemented a risk-based approach
  4. The compliance function lacks sufficient independence and stature Correct answer.

Explanation

Effective AML governance requires the compliance function to have independence and appropriate seniority, including escalation routes to the board. Reporting to a revenue-generating function creates conflicts of interest.

Question 36Anti-Money Laundering Supervision

How does a supervisor typically use the results of a national money laundering risk assessment?

  1. To determine individual customers' creditworthiness
  2. To calculate corporate tax rates
  3. To decide the firm's share price
  4. To set the priorities and scope of its supervisory programme Correct answer.

Explanation

A national risk assessment identifies the sectors, products and channels most exposed to money laundering risk, and supervisors use it to prioritise resources and shape supervisory programmes. It is a strategic input, not a tool for customer or fiscal decisions.

Question 37Anti-Money Laundering Supervision

A supervisor discovers that a firm accepts certified copies of identity documents from an unregulated introducer without any written agreement. What is the key supervisory deficiency?

  1. The firm is charging customers excessive fees
  2. The firm is reporting too many suspicious transactions
  3. The firm has too many compliance staff
  4. The firm has not documented and controlled its reliance on a third party Correct answer.

Explanation

Where a firm relies on a third party for due diligence, supervisors expect a documented arrangement, assurance about the third party's controls and clear allocation of responsibility. Undocumented reliance leaves the firm unable to demonstrate compliance.

Question 38Anti-Money Laundering Supervision

Which supervisory response is most proportionate when a firm has a minor, isolated record-keeping lapse that it has already corrected?

  1. A written observation requiring the firm to confirm remedial action Correct answer.
  2. A criminal prosecution of the compliance officer
  3. Immediate licence revocation
  4. A public announcement of the firm's failure

Explanation

Proportionality requires the supervisory response to match the seriousness of the issue. A minor, self-corrected lapse is normally addressed through feedback or a written observation rather than severe sanctions.

Question 39Anti-Money Laundering Supervision

A supervisor is examining a firm that operates in several countries and applies the AML standards of its home country everywhere. The host country has stricter rules. What should the firm do?

  1. Apply the home standard only, as it is the group standard
  2. Apply the stricter host requirement where it applies Correct answer.
  3. Apply whichever standard is cheapest to implement
  4. Apply no standard in the host country

Explanation

Where host-country requirements are stricter than the group's home standard, the firm is generally expected to apply the stricter local requirement. Group-wide policies set a floor, not a ceiling.

Question 40Anti-Money Laundering Supervision

What is the purpose of a supervisory authority publishing enforcement notices against firms?

  1. To deter misconduct and communicate supervisory expectations Correct answer.
  2. To promote the firm's products
  3. To increase the supervisor's revenue
  4. To replace the need for inspections

Explanation

Publishing enforcement action serves deterrence and transparency, signalling to the market what conduct is unacceptable and what standards are expected. It is a communication and deterrence tool, not a revenue measure.

Question 41Anti-Money Laundering Supervision

A supervisor is reviewing a firm's suspicious transaction reporting and finds many reports but very little supporting narrative. What is the most appropriate supervisory finding?

  1. The reports lack the context needed for effective analysis Correct answer.
  2. The reports are of high quality and need no change
  3. The firm should stop reporting entirely
  4. The firm is reporting too quickly

Explanation

A suspicious transaction report must convey enough context for the financial intelligence unit to assess and use it. Volume without narrative undermines the value of reporting and suggests a tick-box approach.

Question 42Anti-Money Laundering Supervision

Which supervisory technique best tests whether a firm's transaction monitoring system generates useful alerts rather than excessive noise?

  1. Reviewing the firm's logo and branding
  2. Counting the number of employees in the firm
  3. Analysing alert volumes and the proportion that lead to escalation Correct answer.
  4. Checking the firm's office locations

Explanation

Alert-to-escalation ratios and disposition analysis show whether monitoring rules are calibrated to risk or generate unmanageable noise. Supervisors use this evidence to assess the system's effectiveness.

Question 43Anti-Money Laundering Supervision

A supervisor requires a firm to appoint an external expert to review its AML programme. What is the main purpose of such a requirement?

  1. To reduce the firm's reporting obligations
  2. To obtain independent assurance that remediation is effective Correct answer.
  3. To allow the firm to avoid supervisory scrutiny
  4. To transfer legal responsibility for AML compliance to the expert

Explanation

An independent review provides the supervisor with assurance that the firm's remediation is genuine and effective. Legal responsibility for compliance remains with the firm and its management.

Question 44Anti-Money Laundering Supervision

What is the role of a supervisor when a firm's suspicious transaction report is filed with the financial intelligence unit?

  1. The supervisor approves each report before it is sent
  2. The supervisor automatically investigates every report
  3. The supervisor uses reporting data as one input to its risk-based oversight Correct answer.
  4. The supervisor replaces the financial intelligence unit

Explanation

The financial intelligence unit receives and analyses reports, while the supervisor uses reporting data and quality as an indicator of the firm's controls. The supervisor does not approve or investigate each report.

Question 45Anti-Money Laundering Supervision

A supervisor finds that a firm's AML policy has not been updated despite a new high-risk product launch. Which control failure does this most directly indicate?

  1. The policy refresh process is not linked to business change Correct answer.
  2. The firm has too few customers
  3. The firm's staff are over-trained
  4. The firm's fees are too low

Explanation

Policies must be kept current and responsive to changes in products, services and risk. A new high-risk product without a corresponding policy update shows the refresh process is disconnected from business change.

Question 46Anti-Money Laundering Supervision

Which factor would most likely cause a supervisor to raise a firm's inherent risk rating?

  1. A long-standing branch network with local customers
  2. A policy of refusing all foreign customers
  3. A large volume of high-value cross-border wire transfers for non-resident customers Correct answer.
  4. A stable domestic retail deposit base

Explanation

Inherent risk reflects the nature of the firm's business, customers and geographies before controls are considered. High-value cross-border transfers for non-residents are a recognised higher-risk combination.

Question 47Anti-Money Laundering Supervision

A supervisor finds that a firm's board approved an AML programme but never receives management information on its performance. What is the most significant consequence?

  1. The board cannot exercise effective oversight of AML risk Correct answer.
  2. The firm will automatically lose its licence
  3. The firm's customers will pay higher fees
  4. The compliance officer will be promoted

Explanation

Board oversight depends on timely, meaningful management information about AML risks and control performance. Without it, approval of the programme is formal rather than substantive.

Question 48Anti-Money Laundering Supervision

A supervisor is considering whether to require a firm to remediate a weakness before allowing a planned acquisition to complete. What principle supports this approach?

  1. Remediation should always follow expansion
  2. Acquisitions always eliminate AML risk
  3. Supervisors may never consider AML issues in approvals
  4. Supervisors may use approval gates to ensure AML risks are addressed before business expands Correct answer.

Explanation

Supervisors can attach conditions to approvals, including change-of-control and acquisition consents, so that unresolved AML weaknesses are fixed before risk exposure grows. This uses the approval process as a lever for remediation.

Question 49Anti-Money Laundering Supervision

Two supervisors in different countries disagree about the severity of a control weakness at a cross-border group. Which approach best reflects good supervisory cooperation?

  1. The supervisors share findings and coordinate their responses through established channels Correct answer.
  2. The host supervisor publicly criticises the home supervisor
  3. Each supervisor acts unilaterally without informing the other
  4. The home supervisor instructs the host supervisor to close its file

Explanation

Effective cross-border supervision relies on sharing relevant information and coordinating responses so that the group receives consistent, coherent treatment. Unilateral or adversarial action undermines that coordination.

Question 50Anti-Money Laundering Supervision

A supervisor observes that a firm's automated screening system produces thousands of alerts, most of which are closed without documented rationale. What is the most defensible supervisory conclusion?

  1. The system is well calibrated and requires no change
  2. The firm has too few high-risk customers
  3. The firm should disable the screening system
  4. Alert disposition is uncontrolled, so the effectiveness of screening cannot be demonstrated Correct answer.

Explanation

Closing alerts without a documented rationale means the firm cannot show that potential matches were properly assessed. This undermines the evidential basis for concluding that screening is effective.