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Intermediate Banking Professional study materials
Intermediate Banking Professional study resources

Intermediate Banking Professional: Banking Law, Regulation and Compliance

Intermediate Banking Professional · Work through your exam, one topic at a time.

All guide sections

Banking Law, Regulation and Compliance

Banking Law, Regulation and Compliance tests the legal and prudential frame a bank must operate inside: licensing and permitted activities, the Basel capital and liquidity standards, large-exposure and related-party limits, AML/CFT duties, sanctions, conduct and consumer protection, outsourcing and data rules, and supervisory review and resolution planning.

Prudential standards (Basel III)

  • Minimum capital: CET1 4.5%, Tier 1 6.0%, total capital 8.0% of risk-weighted assets (RWA), plus a 2.5% capital conservation buffer and up to 2.5% countercyclical buffer in CET1.
  • Leverage ratio: Tier 1 capital / total exposure ≥ 3%, a backstop to risk weights.
  • LCR = high-quality liquid assets / net cash outflows over 30 days ≥ 100%; NSFR = available stable funding / required stable funding ≥ 100% over one year.
  • Three pillars: Pillar 1 minimums, Pillar 2 supervisory review (ICAAP/SREP), Pillar 3 disclosure.

Conduct and financial crime

  • Customer due diligence at onboarding and on trigger events; enhanced due diligence for PEPs and high-risk jurisdictions; sanctions screening against consolidated lists; suspicious transaction reports filed to the FIU without tipping off the customer.
  • Suitability and disclosure rules apply to investment and insurance products sold through the branch network.

Worked example

A bank has credit RWA 800m, market RWA 100m and operational RWA 100m, so total RWA = 1,000m. CET1 is 55m and total capital is 125m. CET1 ratio = 5.5% and total capital ratio = 12.5%. Against the 4.5% + 2.5% = 7.0% CET1 requirement the bank has a 150bp shortfall and cannot pay discretionary distributions until it rebuilds the conservation buffer. Reasoning: buffers sit on top of minimums and are met with CET1 only; the 8% total minimum is not the number that binds here.

Traps that cost marks

  • Adding the conservation buffer into the 8% total capital minimum instead of treating it as CET1 on top.
  • Using total assets rather than RWA as the denominator.
  • Confusing LCR (30 days) with NSFR (one year).
  • Relying on a single AML control instead of CDD, monitoring and reporting together.