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CKYCA practice questions

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Question 1KYC Fundamentals and Regulatory Framework

Which international body issues the FATF Recommendations that set the global standard for anti-money laundering and counter-terrorist financing measures?

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

Explanation

The Financial Action Task Force is the intergovernmental body that publishes the FATF Recommendations, which form the globally recognised baseline for AML/CFT regimes and are assessed through mutual evaluations. Other bodies issue guidance or standards in narrower areas but do not set the universal AML/CFT baseline.

Question 2KYC Fundamentals and Regulatory Framework

Under a risk-based approach to customer due diligence, what does an institution primarily do with its assessed money laundering and terrorist financing risks?

  1. Apply identical verification steps to every customer regardless of assessed risk
  2. Apply enhanced measures to higher-risk relationships and simplified measures to demonstrably lower-risk ones Correct answer.
  3. Suspend onboarding until a regulator approves each customer file
  4. Rely solely on the customer's self-declared risk rating

Explanation

The risk-based approach requires calibrating the intensity of due diligence to the assessed risk, so higher-risk customers receive enhanced measures while genuinely lower-risk situations may qualify for simplified measures. This proportionality is a core principle of the FATF Recommendations and most national regimes.

Question 3KYC Fundamentals and Regulatory Framework

In KYC terminology, who is the beneficial owner of a legal entity?

  1. The corporate secretary who maintains the statutory registers
  2. The senior manager who signs the account opening documents
  3. The natural person who ultimately owns or controls the entity or the transaction Correct answer.
  4. The external auditor who certifies the annual accounts

Explanation

Beneficial ownership refers to the natural person or persons who ultimately own or control a legal arrangement or the transaction, even where ownership is layered through other entities. Identifying these individuals, rather than intermediate corporate officers, is the objective of beneficial ownership identification.

Question 4KYC Fundamentals and Regulatory Framework

What is the primary purpose of a customer due diligence process at onboarding?

  1. To identify and verify the customer and understand the intended nature of the business relationship Correct answer.
  2. To assess whether the customer will generate sufficient fee income
  3. To satisfy marketing consent requirements under data protection law
  4. To determine the customer's creditworthiness for lending purposes

Explanation

Customer due diligence establishes who the customer is, verifies identity using reliable sources, and builds an understanding of the purpose and intended nature of the relationship. Profitability, creditworthiness and marketing consent are separate commercial or regulatory questions.

Question 5KYC Fundamentals and Regulatory Framework

A customer refuses to provide the identity information required for standard due diligence and no exemption applies. What is the expected outcome under a typical KYC framework?

  1. The institution should decline to establish the relationship or should terminate the existing one Correct answer.
  2. The institution should proceed and flag the file for review after twelve months
  3. The institution should accept a verbal assurance from a branch employee
  4. The institution should open the account but restrict it to small transactions

Explanation

Where required due diligence cannot be completed, the institution should not establish the business relationship, and for an existing relationship it should consider terminating it and filing any required report. Proceeding without verification exposes the institution to regulatory breach.

Question 6KYC Fundamentals and Regulatory Framework

Which concept describes the offence of concealing the origin of funds derived from criminal activity so they appear legitimate?

  1. Tax evasion
  2. Market abuse
  3. Money laundering Correct answer.
  4. Insider dealing

Explanation

Money laundering is the process of disguising the criminal origin of proceeds so that they appear to come from a legitimate source, commonly described in placement, layering and integration stages. The other options describe distinct financial crime or misconduct categories.

Question 7KYC Fundamentals and Regulatory Framework

What does the term 'predicate offence' mean in the context of anti-money laundering?

  1. The underlying criminal offence that generates the proceeds being laundered Correct answer.
  2. The administrative penalty imposed for record-keeping failures
  3. The offence committed by an institution that breaches a sanctions list
  4. The offence of failing to report a suspicious transaction

Explanation

A predicate offence is the underlying crime, such as fraud, drug trafficking or corruption, whose proceeds are then laundered. Reporting failures, administrative penalties and sanctions breaches are separate categories of offence.

Question 8KYC Fundamentals and Regulatory Framework

Which statement best describes the role of a national Financial Intelligence Unit?

  1. It licenses banks and sets their minimum capital requirements
  2. It sets the global FATF Recommendations for all jurisdictions
  3. It directly prosecutes money laundering cases in the criminal courts
  4. It receives, analyses and disseminates suspicious transaction reports and other financial intelligence Correct answer.

Explanation

A Financial Intelligence Unit is the national centre responsible for receiving and analysing suspicious transaction reports and disseminating the resulting intelligence to competent authorities. Prosecution, prudential licensing and global standard-setting sit with other bodies.

Question 9KYC Fundamentals and Regulatory Framework

Which of the following is the clearest example of an enhanced due diligence trigger?

  1. A student account receiving a monthly maintenance transfer from a parent
  2. A long-standing customer updating an expired passport
  3. A politically exposed person from a higher-risk jurisdiction seeking to open a private banking relationship Correct answer.
  4. A salaried employee opening a basic current account in the same country

Explanation

Politically exposed persons, particularly those linked to higher-risk jurisdictions, and products such as private banking are recognised higher-risk indicators that call for enhanced measures including senior approval and source of wealth checks. The other scenarios are ordinary lower-risk events.

Question 10KYC Fundamentals and Regulatory Framework

A corporate customer is owned 60 percent by another company registered in a secrecy jurisdiction, which is itself owned by an individual. What should the institution do to establish beneficial ownership?

  1. Rely on the customer's statement that no individual owns more than 25 percent
  2. Accept the intermediate company as the beneficial owner because it holds the majority stake
  3. Look through the intermediate company to identify the natural person who ultimately owns or controls the customer Correct answer.
  4. Record only the directors of the customer company as controllers

Explanation

Beneficial ownership identification requires looking through layers of corporate ownership to reach the natural persons who ultimately own or control the entity. Treating an intermediate company as the end point or relying on unverified customer statements does not satisfy the requirement.

Question 11KYC Fundamentals and Regulatory Framework

What is the key distinction between customer identification and customer verification?

  1. Identification is performed annually, while verification is performed at onboarding
  2. Identification collects customer details, while verification corroborates those details using reliable independent evidence Correct answer.
  3. Identification applies only to companies, while verification applies only to individuals
  4. Identification is a legal duty, while verification is an optional commercial practice

Explanation

Identification is the process of obtaining identifying information such as name, date of birth and address, whereas verification is the corroboration of that information against reliable, independent sources. Both steps together constitute satisfactory due diligence.

Question 12KYC Fundamentals and Regulatory Framework

An institution uses simplified due diligence for a category of customers. Which condition must normally be satisfied first?

  1. The institution has identified the category as demonstrably lower risk through its documented risk assessment Correct answer.
  2. The customer has agreed in writing to waive identity verification
  3. The customer has been known to a branch employee for more than five years
  4. The account balance is expected to remain below any arbitrary internal limit

Explanation

Simplified measures may only be applied where the institution has established, through a documented risk assessment, that the particular category or situation presents lower risk. Customer waivers, internal balance caps and staff familiarity are not valid substitutes.

Question 13KYC Fundamentals and Regulatory Framework

Why does the FATF standard require institutions to conduct ongoing monitoring of business relationships?

  1. To replace the need for initial identity verification at onboarding
  2. To keep the customer risk profile current and to detect activity inconsistent with the expected relationship Correct answer.
  3. To determine the appropriate interest rate for lending products
  4. To calculate the customer's annual tax liability

Explanation

Ongoing monitoring ensures that the institution keeps due diligence information up to date and scrutinises transactions against the expected pattern of activity, enabling detection of unusual or suspicious behaviour. It supplements rather than replaces initial verification.

Question 14KYC Fundamentals and Regulatory Framework

What is the primary obligation when an institution forms a suspicion that funds are the proceeds of crime?

  1. Submit a suspicious transaction report to the Financial Intelligence Unit promptly and avoid tipping off the customer Correct answer.
  2. Report only if the transaction exceeds a fixed monetary threshold
  3. Wait until the relationship is closed before reporting
  4. Confront the customer to obtain an explanation before reporting

Explanation

A suspicion triggers an obligation to report promptly to the Financial Intelligence Unit, and the institution must avoid disclosing the report to the customer to prevent tipping off. Confronting the customer or waiting for closure defeats the purpose of the reporting regime.

Question 15KYC Fundamentals and Regulatory Framework

Which behaviour illustrates the 'structuring' typology?

  1. Splitting cash deposits into amounts just below the reporting threshold across several branches Correct answer.
  2. Receiving a single salary payment into a personal current account
  3. Paying a utility bill by direct debit
  4. Transferring funds between two accounts held by the same person at the same bank

Explanation

Structuring, also called smurfing, involves deliberately breaking up transactions to stay below reporting or record-keeping thresholds and thereby avoid scrutiny. The other examples are ordinary personal banking activities.

Question 16KYC Fundamentals and Regulatory Framework

A politically exposed person is defined primarily by reference to which characteristic?

  1. Holding or having held a prominent public function Correct answer.
  2. Being resident in a country with capital controls
  3. Holding shares in a listed company
  4. Having a criminal conviction for fraud

Explanation

Politically exposed persons are individuals entrusted with prominent public functions, along with their family members and close associates, because that position creates a higher corruption risk. Criminal history, residency and share ownership are not the defining criterion.

Question 17KYC Fundamentals and Regulatory Framework

Why does the FATF framework require institutions to identify the source of funds and source of wealth for higher-risk customers?

  1. To establish the customer's eligibility for deposit insurance
  2. To determine whether the customer qualifies for a loyalty programme
  3. To calculate the customer's expected investment return
  4. To confirm that the assets involved are consistent with legitimate known income and activities Correct answer.

Explanation

Source of funds concerns the origin of the specific funds used in a transaction, while source of wealth concerns how the customer's overall wealth was accumulated. Both are assessed to confirm consistency with legitimate activity and to detect unexplained wealth.

Question 18KYC Fundamentals and Regulatory Framework

Which governance arrangement best reflects a compliant three-lines-of-defence model for KYC?

  1. Internal audit performs onboarding checks while compliance handles marketing
  2. An external consultant signs off every customer file on behalf of the board
  3. The business unit performs all KYC checks with no independent review
  4. The business unit owns customer risk, a compliance function provides independent oversight, and internal audit provides independent assurance Correct answer.

Explanation

In the three-lines model the first line, the business, owns and manages customer risk; the second line, compliance, sets the framework and provides independent oversight; and the third line, internal audit, gives independent assurance to the governing body. Separating these roles prevents conflicts of interest.

Question 19KYC Fundamentals and Regulatory Framework

What is the main purpose of a national risk assessment in the AML/CFT framework?

  1. To identify and prioritise the money laundering and terrorist financing risks facing the jurisdiction Correct answer.
  2. To rank banks by their quarterly profitability
  3. To set the interest rate applicable to suspicious accounts
  4. To determine individual customer risk ratings at onboarding

Explanation

A national risk assessment evaluates the threats, vulnerabilities and consequences of money laundering and terrorist financing across a jurisdiction so that resources and policy responses can be prioritised. It informs, but does not replace, institution-level risk assessments for individual customers.

Question 20KYC Fundamentals and Regulatory Framework

An institution's customer risk assessment identifies a correspondent banking relationship with a respondent bank in a jurisdiction with weak AML supervision. Which response is most consistent with the risk-based approach?

  1. Decline all correspondent relationships in every jurisdiction as a blanket policy
  2. Rely on the respondent bank's published annual report as the sole due diligence source
  3. Conduct enhanced due diligence on the respondent, including understanding its ownership, controls and AML programme, and obtain senior management approval Correct answer.
  4. Apply standard due diligence because correspondent banking is inherently low risk

Explanation

Correspondent relationships, particularly with institutions in weaker-supervision jurisdictions, are higher risk and call for enhanced due diligence covering the respondent's ownership, governance, AML controls and customer base, together with senior approval. A blanket prohibition or reliance on public reports alone is not a risk-based response.

Question 21KYC Fundamentals and Regulatory Framework

Which situation most clearly indicates that a shell bank arrangement should be refused?

  1. A locally incorporated manufacturer with a factory, staff and audited accounts seeks an operating account
  2. A regulated foreign bank with a licensed branch seeks a correspondent relationship
  3. An entity incorporated in one jurisdiction with no physical presence or meaningful operations there seeks to hold accounts through another institution Correct answer.
  4. A charity with a registered office and active local programmes seeks a donation account

Explanation

A shell bank is an institution incorporated in a jurisdiction where it has no physical presence or meaningful mind and management, and it is typically unaffiliated with a regulated group. FATF standards prohibit entering into or continuing correspondent relationships with such entities.

Question 22KYC Fundamentals and Regulatory Framework

How should an institution treat a long-standing customer whose transaction pattern suddenly changes to large, rapid transfers to multiple unrelated overseas beneficiaries?

  1. Ignore the change because overseas transfers are always routine
  2. Maintain the existing risk rating because the customer has been known for many years
  3. Reassess the customer's risk profile, seek an explanation, and consider escalation or a suspicious transaction report if the activity remains unexplained Correct answer.
  4. Close the account immediately without any review or reporting

Explanation

A material deviation from the expected pattern is a trigger event that requires the institution to reassess risk, seek and evaluate an explanation, and escalate or report if the activity cannot be justified. Length of relationship does not immunise a customer from ongoing scrutiny.

Question 23KYC Fundamentals and Regulatory Framework

Which statement best explains why record-keeping is a substantive KYC obligation rather than an administrative formality?

  1. Records must allow the institution and supervisors to reconstruct and evidence the due diligence and monitoring decisions taken Correct answer.
  2. Records exist only to satisfy internal filing conventions with no external purpose
  3. Records may be discarded as soon as the account is opened
  4. Records are required solely to support the customer's own tax filings

Explanation

Record-keeping requirements exist so that institutions and competent authorities can reconstruct transactions and demonstrate that due diligence and monitoring decisions were appropriate. This supports investigations, supervisory review and defence against enforcement action.

Question 24KYC Fundamentals and Regulatory Framework

Which pairing of FATF terminology with its correct meaning is accurate?

  1. Layering refers to the initial placement of cash into the financial system
  2. Integration refers to the verification of a customer's identity documents
  3. Tipping off refers to splitting deposits below reporting thresholds
  4. Tipping off refers to disclosing to the customer that a suspicious transaction report has been or will be made Correct answer.

Explanation

Tipping off is the prohibited disclosure to a customer or third party that a suspicious report has been or will be submitted. Structuring describes threshold splitting, placement is the first laundering stage, and integration is the final stage where laundered funds re-enter the legitimate economy.

Question 25KYC Fundamentals and Regulatory Framework

Under a risk-based approach, why is a purely rules-based threshold system insufficient on its own?

  1. Fixed thresholds are always set too high by regulators to be meaningful
  2. Criminals can adapt to fixed thresholds, so institutions must also assess the substance and context of activity Correct answer.
  3. Thresholds apply only to corporate customers and never to individuals
  4. Rules-based systems cannot be documented or audited

Explanation

Fixed thresholds can be evaded through structuring and do not capture the context or purpose of a relationship, so they must be complemented by risk-based judgement and monitoring. Rules remain useful as a baseline but cannot substitute for assessing substance.

Question 26KYC Fundamentals and Regulatory Framework

Which three elements make up the standard FATF definition of money laundering?

  1. Prevention, detection, and enforcement
  2. Suspicion, reporting, and investigation
  3. Placement, layering, and integration Correct answer.
  4. Identification, verification, and monitoring

Explanation

The FATF describes money laundering as a process with three stages: placement (introducing illicit funds into the financial system), layering (obscuring the trail through complex transactions), and integration (reintroducing funds as apparently legitimate assets). These stages are analytical categories, not mandatory legal elements of the offence.

Question 27KYC Fundamentals and Regulatory Framework

A customer refuses to provide required identification documents and becomes agitated when asked about the purpose of the account. Under a risk-based KYC framework, what is the most appropriate immediate action?

  1. Decline to establish the business relationship and consider filing a suspicious transaction report Correct answer.
  2. Escalate to senior management for a discretionary waiver
  3. Open the account with a temporary limit pending later document collection
  4. Proceed with the relationship but apply simplified due diligence

Explanation

Institutions must not establish a relationship when they cannot complete customer identification and verification, and refusal to cooperate is itself a risk indicator. Where the refusal raises suspicion, the institution should also consider a suspicious transaction report in line with its legal obligations.

Question 28KYC Fundamentals and Regulatory Framework

Which statement best describes the FATF Recommendation 8 obligation concerning non-profit organisations?

  1. Countries should identify NPOs at risk of terrorist financing abuse and apply proportionate, targeted measures without disrupting legitimate charitable activity Correct answer.
  2. All non-profit organisations must be treated as high-risk customers and refused banking services
  3. Only NPOs registered outside the country are subject to enhanced scrutiny
  4. Non-profit organisations are exempt from customer due diligence because of their charitable purpose

Explanation

Recommendation 8 requires a risk-based approach: countries should identify which NPOs are vulnerable to terrorist financing abuse and apply focused, proportionate measures, while protecting legitimate charitable work. Blanket exclusion or blanket exemption is inconsistent with the standard.

Question 29KYC Fundamentals and Regulatory Framework

A compliance officer is designing the institution's customer risk assessment methodology. Which approach is most consistent with the FATF risk-based approach?

  1. Assign every retail customer the same risk score to ensure consistent treatment
  2. Base risk ratings solely on the amount of the first deposit
  3. Score customers using only their country of residence because other factors are subjective
  4. Combine weighted factors such as customer type, geography, products used, and delivery channel, and review ratings when circumstances change Correct answer.

Explanation

The risk-based approach requires institutions to assess risk using multiple relevant factors, including customer, country or geography, product or service, and delivery channel, and to update the assessment as circumstances change. A single-factor or uniform approach cannot reflect actual risk.

Question 30KYC Fundamentals and Regulatory Framework

A jurisdiction's mutual evaluation report notes that supervisors have legal powers over financial institutions but have never applied sanctions for KYC failures. Which conclusion is most accurate under the FATF methodology?

  1. Supervisory effectiveness is deficient because powers must be exercised proportionately and credibly, including through sanctions where warranted Correct answer.
  2. Effectiveness is irrelevant provided the jurisdiction has transposed the FATF Recommendations into domestic law
  3. The regime is fully effective because the necessary legal powers exist on paper
  4. Sanctions are only required for banks, not for other reporting entities

Explanation

The FATF distinguishes technical compliance from effectiveness: supervisors must not only possess powers but also use them, applying proportionate and dissuasive sanctions where institutions fail to comply. Unexercised powers indicate an effectiveness gap.

Question 31Customer Due Diligence and Identification

A customer opens a personal account and presents a national identity card as proof of identity. Under a risk-based CDD programme, what is the primary purpose of verifying that identity document?

  1. To assess whether the customer's source of funds is legitimate
  2. To determine the customer's tax residency for automatic exchange of information
  3. To confirm that the person is who they claim to be before the relationship is established Correct answer.
  4. To establish the customer's investment objectives and risk tolerance

Explanation

Identity verification exists to confirm that the individual presenting themselves matches the identity they claim, and this should occur before the business relationship is established or the transaction is carried out. Tax residency, source of funds and investment objectives are separate elements of CDD or suitability work, not the purpose of document verification itself.

Question 32Customer Due Diligence and Identification

Which element belongs to the identification stage rather than the verification stage of CDD?

  1. Recording the customer's full name, date of birth and residential address as provided Correct answer.
  2. Obtaining an independent, reliable source that confirms the customer's stated address
  3. Checking a customer against a sanctions screening list before onboarding
  4. Reviewing the customer's transaction pattern after six months of activity

Explanation

Identification is the process of obtaining customer details such as name, date of birth and address, while verification means confirming those details using reliable, independent sources. Screening and ongoing transaction monitoring are separate controls that sit outside the identification step.

Question 33Customer Due Diligence and Identification

A financial institution applies simplified due diligence to a low-risk customer. Which statement best describes what simplified measures permit?

  1. Reliance on the customer's verbal assurance that they are not a PEP
  2. Reduced verification or monitoring proportionate to the documented lower risk, with a recorded rationale Correct answer.
  3. Deferral of all CDD until the first transaction exceeds a set threshold
  4. Complete exemption from identifying the customer or the beneficial owner

Explanation

Simplified measures allow adjustments such as less frequent monitoring or lighter verification, but they must be proportionate to the assessed lower risk and supported by a documented risk rationale. Identification and beneficial ownership requirements are not waived, and simplified measures are never permitted where higher risk exists.

Question 34Customer Due Diligence and Identification

During onboarding of a private company, the compliance officer must determine the beneficial owners. Which criterion correctly reflects the ownership test commonly applied?

  1. Any natural person who ultimately owns or controls at least 25% of the shares or voting rights Correct answer.
  2. Any relative of the company's chief executive officer
  3. Any employee holding a management title in the company
  4. Any bank that provides a credit facility to the company

Explanation

The ownership prong of beneficial ownership looks to natural persons who ultimately own or control a defined percentage of shares or voting rights, typically 25% under many national regimes. Titles, lenders and family relationships do not by themselves create beneficial ownership; control through other means is assessed separately.

Question 35Customer Due Diligence and Identification

A company's shares are all held by another company, which is in turn wholly owned by a natural person. How should the beneficial owner be recorded?

  1. The immediate holding company that appears on the share register
  2. The natural person at the top of the ownership chain Correct answer.
  3. The company's appointed director who signs the account mandate
  4. The corporate secretary that maintains the statutory registers

Explanation

Beneficial ownership requires looking through layers of legal entities to identify the natural person who ultimately owns or controls the customer. Intermediate holding companies, directors and service providers are not beneficial owners merely because they appear in the structure.

Question 36Customer Due Diligence and Identification

A trust wishes to open an account. Which party is generally treated as a beneficial owner of the trust?

  1. Only the trustee bank appointed to administer the trust
  2. The settlor, the trustee and the beneficiaries, among others Correct answer.
  3. Only the trust's external auditor
  4. Only the investment manager engaged by the trustees

Explanation

For trusts, beneficial owners typically include the settlor, the trustees, the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control. Service providers such as auditors or investment managers are not beneficial owners by virtue of their role.

Question 37Customer Due Diligence and Identification

A prospective customer refuses to provide information needed to verify identity and gives no acceptable reason. What is the appropriate CDD outcome?

  1. Open the account but restrict it to small cash deposits only
  2. Ask a colleague to vouch for the customer in writing instead
  3. Do not establish the relationship and consider whether to file an internal suspicious activity report Correct answer.
  4. Proceed using the address printed on an expired utility bill

Explanation

Where a customer cannot or will not provide the required CDD information, the institution should not establish the relationship, should consider terminating an existing one, and should evaluate whether a suspicious activity report is warranted. Partial workarounds such as vouching or restricted accounts do not satisfy the CDD obligation.

Question 38Customer Due Diligence and Identification

Which situation most clearly calls for enhanced due diligence rather than standard measures?

  1. A politically exposed person from a higher-risk jurisdiction seeking to open a wealth account Correct answer.
  2. A student opening an account with a small initial deposit
  3. A long-standing customer updating a telephone number
  4. A salaried employee resident locally opening a basic savings account

Explanation

PEP status combined with a higher-risk jurisdiction is a recognised higher-risk indicator that triggers enhanced due diligence, including senior management approval and closer scrutiny of source of wealth and funds. The other scenarios are ordinary low-risk situations suited to standard measures.

Question 39Customer Due Diligence and Identification

A customer is identified as a domestic politically exposed person. Which measure is most characteristic of enhanced due diligence in this case?

  1. Reducing monitoring because the PEP is locally based
  2. Obtaining senior management approval before establishing the relationship Correct answer.
  3. Relying solely on the customer's signed declaration of PEP status
  4. Waiving source-of-wealth checks because the PEP is well known

Explanation

Enhanced due diligence for PEPs typically requires senior management approval, establishment of source of wealth and source of funds, and enhanced ongoing monitoring. Self-declaration alone, reduced monitoring, or waiving wealth checks would undermine the control.

Question 40Customer Due Diligence and Identification

What distinguishes source of wealth from source of funds in a CDD file?

  1. Source of wealth is only required for corporate customers; source of funds only for individuals
  2. Source of wealth is a tax concept; source of funds is an accounting concept
  3. Source of wealth explains how total assets were accumulated; source of funds explains the origin of the specific money in the transaction Correct answer.
  4. Source of wealth refers to the customer's salary; source of funds refers to the customer's investment returns

Explanation

Source of wealth addresses how the customer's overall wealth was generated, while source of funds addresses the origin of the particular money involved in the relationship or transaction. Both may be required, and the depth of evidence rises with risk.

Question 41Customer Due Diligence and Identification

A customer uses a valid passport as proof of identity but the address on file differs from the address on the supporting document. What is the most appropriate action?

  1. Close the account immediately without further review
  2. Accept the passport address and ignore the mismatch
  3. Seek additional reliable evidence to resolve the discrepancy before completing verification Correct answer.
  4. Record both addresses and take no further action

Explanation

Discrepancies in customer information should be resolved through additional reliable evidence or explanation before verification is completed. Ignoring the mismatch, taking no action, or immediate closure without review is disproportionate and does not address the underlying inconsistency.

Question 42Customer Due Diligence and Identification

Which document is generally the strongest independent source for verifying a customer's residential address?

  1. A business card showing the customer's job title
  2. A recent utility bill or bank statement issued in the customer's name Correct answer.
  3. A letter of introduction from the customer's employer
  4. A photograph of the customer's front door

Explanation

Address verification relies on documents issued by an independent, reliable source that link the customer's name to the stated address, such as a recent utility bill or bank statement. Business cards, introduction letters and photographs are not independent evidence of residence.

Question 43Customer Due Diligence and Identification

A customer presents a certified copy of an identity document instead of the original. What makes the certification acceptable?

  1. The certifier is an independent, reputable person who confirms the copy matches the original Correct answer.
  2. The copy is printed on high-quality paper
  3. The customer signs a statement that the copy is accurate
  4. The copy is accompanied by a recent photograph of the customer

Explanation

Acceptable certification requires an independent and reputable certifier who has seen the original and confirms the copy is a true likeness. Customer self-certification, paper quality or an extra photograph does not provide independent assurance.

Question 44Customer Due Diligence and Identification

A corporate customer is a shell company with no apparent business activity and nominee shareholders. What is the most appropriate CDD response?

  1. Apply simplified due diligence because the company has no trading activity
  2. Rely on the company's registered agent to confirm beneficial ownership verbally
  3. Accept the nominee shareholders as the beneficial owners without further inquiry
  4. Treat the customer as higher risk and identify the natural persons behind the nominees with enhanced scrutiny Correct answer.

Explanation

Shell companies with nominee arrangements are a recognised higher-risk indicator because ownership and control are obscured. The institution should look through the nominee structure to the underlying natural persons and apply enhanced scrutiny, not simplified measures.

Question 45Customer Due Diligence and Identification

What is the key distinction between customer due diligence and enhanced due diligence?

  1. EDD replaces CDD entirely for high-risk customers
  2. EDD applies only to corporate customers while CDD applies to individuals
  3. EDD is a one-time check while CDD is continuous
  4. EDD applies additional, more intensive measures where risk is assessed as higher Correct answer.

Explanation

Enhanced due diligence builds on standard CDD by adding more intensive measures such as senior approval, deeper source-of-wealth analysis and closer monitoring where risk is higher. It supplements rather than replaces CDD and is not defined by customer type or by being a one-time exercise.

Question 46Customer Due Diligence and Identification

An institution uses a third party to carry out CDD on its behalf. Which statement best describes the institution's responsibility?

  1. The institution may rely on the third party only if the customer consents in writing
  2. Responsibility transfers entirely to the third party once the work is done
  3. The institution remains responsible for the CDD outcome and must be able to obtain the underlying records promptly Correct answer.
  4. The institution may rely on the third party without any written agreement

Explanation

Where CDD is outsourced or reliance is placed on a third party, the institution retains ultimate responsibility for compliance and must be able to obtain the underlying identification and verification records without delay. A written arrangement and appropriate due diligence on the third party are also expected.

Question 47Customer Due Diligence and Identification

Which practice best supports ongoing CDD for an existing customer?

  1. Collecting a new identity document every month regardless of risk
  2. Freezing the account at every anniversary date
  3. Reviewing the file only if a regulator requests it
  4. Updating the customer's risk rating and information when a trigger event such as a change in ownership occurs Correct answer.

Explanation

Ongoing CDD means keeping customer information and risk ratings current, particularly when trigger events such as ownership changes, unusual activity or adverse media occur. Reviews should be risk-based rather than reactive only to regulator requests or applied mechanically at fixed intervals.

Question 48Customer Due Diligence and Identification

A customer's stated occupation is a retired teacher, but account activity shows large recurring transfers from an unrelated overseas business. What is the most appropriate CDD action?

  1. Increase the account limit because the transfers are recurring
  2. Assume the transfers are legitimate because they are regular
  3. Re-examine the customer's source of funds and wealth and consider escalation for suspicious activity Correct answer.
  4. Close the account without documenting the reason

Explanation

Activity inconsistent with the customer's stated profile is a red flag that warrants re-examining source of funds and wealth and escalating internally, with consideration of a suspicious activity report. Assuming legitimacy, raising limits or undocumented closure does not address the inconsistency.

Question 49Customer Due Diligence and Identification

Which customer characteristic most commonly justifies a lower CDD risk rating?

  1. A customer whose ownership structure includes several offshore nominee companies
  2. A customer who insists on using large cash deposits
  3. A customer who declines to explain the origin of incoming funds
  4. A locally resident salaried individual with a stable, verifiable employment history Correct answer.

Explanation

Stable, verifiable local employment with transparent income is a recognised lower-risk indicator. Offshore nominee structures, large cash use and refusal to explain fund origins are all higher-risk characteristics that call for enhanced measures.

Question 50Customer Due Diligence and Identification

A customer asks to open an account remotely without face-to-face contact. Which control is most appropriate for non-face-to-face onboarding?

  1. Use technology-based verification such as electronic identity checks or liveness testing to compensate for the absence of physical presence Correct answer.
  2. Accept the customer's typed declaration of identity without further checks
  3. Require no verification because remote onboarding is inherently low risk
  4. Rely on the customer's social media profile as proof of identity

Explanation

Non-face-to-face onboarding carries higher impersonation risk, so institutions use technology-based controls such as electronic identity verification or biometric liveness checks to provide equivalent assurance. Self-declaration, social media profiles and no verification are not adequate substitutes.