Regulation, compliance and risk
Regulation, compliance and risk tests the rules and controls that constrain financial activity: licensing, conduct, AML/KYC, market abuse, reporting, and prudential buffers. Expect scenario questions where the correct action is escalation or disclosure, not a workaround.
Core rule areas
- AML/KYC requires customer identification, beneficial-ownership checks, risk-based monitoring, and suspicious-activity reporting without tipping off the client.
- Market-abuse controls cover insider dealing, unlawful disclosure, and manipulation such as wash trades or spoofing.
- Transaction reporting and trade-repository reporting require accurate, timely, complete identifiers; EMIR and MiFID II are common examples in European markets.
- Prudential rules include capital, liquidity, and leverage ratios; Basel III sets a 3% leverage ratio minimum for internationally active banks.
Worked example
A bank has Tier 1 capital of 80 million and total exposure of 1.2 billion. Leverage ratio = 80/1,200 = 6.67%, above the 3% minimum. If exposure rises to 2.8 billion while capital stays at 80 million, the ratio is 80/2,800 = 2.86%, a breach. The control response is to reduce exposure or raise capital, not to reclassify the exposure without a rule basis.
Traps
Treating a false-positive sanctions alert as automatically safe; filing a report late because the client asked for delay; confusing suitability with anti-money-laundering; ignoring personal-account dealing rules; assuming one jurisdiction's rules apply globally.