CAIIB ABM Module D UNIT 26 MCQ – Compliance Function in Banks

Correct Answer: B. To identify compliance risk levels in business activities and issue instructions or propose mitigation. The Head Office Compliance department’s central role involves identifying compliance risks across business lines, products, and processes and directing actions to manage these risks.

Correct Answer: C. They should be periodically circulated among staff with instructions for future prevention. The procedure involves sharing information about compliance failures periodically with staff and providing guidance to prevent similar issues in the future.

Correct Answer: B. They act as a feedback mechanism for assessing areas where compliance has failed or breached. Findings from inspections and audits provide valuable feedback that helps the Compliance department evaluate areas where compliance has been inadequate.

Correct Answer: C. Compliance with the regulatory guidelines and instructions that have been disseminated. A robust mechanism includes both promptly spreading the guidelines and monitoring whether they are being followed.

Correct Answer: B. For seeking clarifications or interpretations of various regulatory and statutory guidelines. The Compliance department is intended to be the go-to resource for staff in operational roles needing help understanding complex rules and regulations.

Correct Answer: B. To identify, document, and assess the associated compliance risks. The compliance function should actively work to pinpoint, record, and evaluate the risks related to following rules and laws that come with the bank’s operations and offerings.

Correct Answer: B. They should be thoroughly analysed and appropriate risk mitigants put in place. New products and processes require a complete review of their compliance risks and the establishment of necessary controls to reduce those risks before being introduced.

Correct Answer: B. The Chief Compliance Officer. Including the Chief Compliance Officer in the ‘new product’ committee helps ensure that new offerings meet all compliance requirements before they are launched.

Correct Answer: C. Six months. New products should be closely monitored for the first six months after they are introduced to make sure that the risks related to following rules are being properly managed.

Correct Answer: B. By developing function-wise Compliance manuals in co-ordination with the compliance department or including specific sections in operating manuals. Banks should create specific compliance guides for different functions or add compliance sections to their existing operating guides and make these available to relevant staff.

Correct Answer: B. Legal department, Operational Risk management department, Taxation department, and Audit/Inspection department. Regular interaction with these specific departments helps the Compliance department stay informed about current issues and changes relevant to their work.

Correct Answer: C. Access to all required information and the right to conduct investigations and report findings to the Chief Compliance Officer. Compliance officers need full access to information and the ability to investigate matters and report their findings to their superior, the Chief Compliance Officer.

Correct Answer: C. As a friend, philosopher, and guide. The compliance staff should be seen by the business teams as a helpful resource providing support and guidance.

Correct Answer: B. By making the Chief Compliance Officer a member of various interdepartmental committees. Formalising the relationship can be achieved by including the Chief Compliance Officer in relevant committees where different departments interact.

Correct Answer: B. Perform sufficient and representative compliance testing and report results to senior management. The compliance function should actively conduct testing on a broad and representative scale and provide the outcomes to the senior leadership team.

Correct Answer: C. Performance indicators. Using specific metrics or indicators of performance can help the compliance function quantify compliance risk and improve how it evaluates that risk.

Correct Answer: C. Compliance reviews/investigations. Staff within the compliance function should have the power to conduct reviews and investigations related to compliance matters whenever required.

Correct Answer: C. The Chief Compliance Officer. The decision to engage external experts for investigations should be left to the judgement of the Chief Compliance Officer.

Correct Answer: B. To senior management, and also have direct access to the board of directors or the audit committee. The compliance function should have reporting lines to senior management but also an independent channel to the board or its audit committee to report issues freely.

Correct Answer: D. At least annually. The Chief Compliance Officer is required to meet with the Audit Committee of the Board at least once a year to discuss how well the bank is handling its compliance risks.

Correct Answer: C. An annual Report on compliance function. A yearly report summarising the activities and performance of the compliance function, including any failures, should be prepared and presented to the Board or relevant committee.

Correct Answer: C. Non-compliance with any regulatory guidelines, administrative actions, and corrective steps taken. The bank’s annual report should include details about any failure to follow rules, actions taken against the bank, and the steps implemented to prevent similar issues in the future.

Correct Answer: B. Working towards earning the trust of society by dealing with customers in a fair manner and conducting business consistent with rules and regulations. The employee code of conduct should promote building public trust through equitable customer interactions and conducting business in line with established rules and regulations.

Correct Answer: C. Record of compliance. An employee’s history of adhering to rules and regulations could be considered when evaluating their performance.

Correct Answer: C. For all compliance failures. Employees should be held responsible and their accountability assessed whenever there is a failure to comply with rules, regardless of the scale.

Correct Answer: B. A compliance programme that sets out its planned activities. The work and duties of the compliance function should be performed within the framework of a defined programme that outlines its intended activities.

Correct Answer: B. Risk-based and subject to oversight by the head of compliance. The compliance programme should be built around identified risks and supervised by the head of the compliance function.

Correct Answer: B. A comprehensive compliance plan replete with testing and review structures. Due to the greater emphasis on checking compliance during supervision, a detailed plan including methods for testing and reviewing compliance needs to be put into action.

Correct Answer: B. Fulfilling the role of anti-money laundering officer. A specific legal duty that the compliance function might be responsible for is acting as the officer in charge of preventing money laundering.

Correct Answer: C. An annual compliance risk assessment. Once a year, banks should conduct an evaluation to identify and understand the main risks related to compliance and create a strategy to deal with them.

Correct Answer: B. Under a compliance programme that outlines its planned activities. The work of the compliance function should be structured and carried out according to a predefined programme detailing its activities.

Correct Answer: C. It should be risk-based and subject to oversight by the head of compliance. The compliance programme should be designed around identified risks and supervised by the head of the compliance function to ensure adequate coverage and coordination with risk management.

Correct Answer: B. Comprehensive compliance plans with testing and review structures. Given the greater focus on checking compliance during supervision, detailed plans including testing and review mechanisms are necessary for implementation.

Correct Answer: B. Fulfilling the role of anti-money laundering officer. The compliance function may be assigned specific legal duties, such as the responsibility for anti-money laundering efforts.

Correct Answer: C. An annual compliance risk assessment. Banks are expected to perform a yearly assessment to identify and evaluate significant risks related to compliance and develop strategies to address them.

Correct Answer: C. Compliance failures from the preceding year, resulting losses, regulatory action, and steps to avoid recurrence. The yearly review should examine past compliance issues, their consequences, actions taken by regulators, and measures implemented to prevent them from happening again.

Correct Answer: B. A list of all major regulatory guidelines issued in the preceding year and steps taken by the bank to ensure compliance. The annual review should include details of important regulatory rules issued in the past year and the actions the bank took to follow them.

Correct Answer: B. The independence of the compliance function. The annual review should assess whether the compliance function operates with sufficient independence within the bank.

Correct Answer: B. Scope of compliance procedures and processes. The yearly review should examine the range and nature of the methods and steps used for compliance.

Correct Answer: B. The system of internal control to minimise compliance risk. The annual review should look at the bank’s internal control framework designed to reduce the risk of non-compliance.

Correct Answer: B. Compliance with fair practices codes and adherence to standards set by self-regulatory bodies and accounting standards. The annual review should assess whether the bank follows fair practice guidelines and meets the standards set by relevant industry bodies and accounting rules.

Correct Answer: B. Progress in rectifying significant deficiencies pointed out in internal audit, statutory audit, and inspection reports, and the implementation of recommendations. The annual review should cover the steps taken to correct major problems identified in internal and external audits and inspections, and whether suggested actions have been put in place.

Correct Answer: B. Restructuring of the compliance department, including staff posting, transfer, or training. The strategy outlined in the annual review for the upcoming year should include, if needed, changes to the structure of the compliance department, involving staffing decisions and training.

Correct Answer: B. Adherence and compliance with them. Following and meeting the requirements of Monitorable Action Plans or Risk Mitigation Plans that come from inspections is considered highly important.

Correct Answer: B. A time-bound strategy to ensure compliance is achieved within the time frame. Compliance units should create a plan with specific deadlines to make sure that all points mentioned in the MAP/RMP are addressed and complied with within the given time.

Correct Answer: B. A monthly report. In addition to the detailed annual review, the Chief Compliance Officer may submit a report on the status of compliance risk to senior management or the CEO every month.

Correct Answer: C. Quarterly. A summary report on compliance status may be presented to the Board or relevant committee every three months.

Correct Answer: C. Promptly. Significant failures in compliance that carry a high risk of legal or regulatory penalties, financial loss, or damage to reputation should be reported quickly to the Board or relevant committee.

Correct Answer: B. The internal audit mechanism. The work performed by the compliance function should be reviewed every year by the bank’s internal audit system.

Correct Answer: C. Compliance risk. The internal audit’s method for assessing risk should include the risk related to compliance.

Correct Answer: B. The adequacy and effectiveness of the bank’s compliance function, including testing of controls. The internal audit plan should evaluate how suitable and effective the bank’s compliance function is, including checking its control mechanisms.

Correct Answer: B. Keep them informed on developments and establish written guidance for staff. The compliance function should update senior management on regulatory changes and provide clear written instructions to staff on how to implement compliance requirements.

Correct Answer: C. Policies and procedures, compliance manuals, internal codes of conduct, and practice guidelines. Written instructions for staff on following compliance rules should be provided through formal documents like policies, manuals, codes, and guidelines.

Correct Answer: B. They must comply with applicable laws and regulations in those jurisdictions. Banks conducting business in various countries are required to follow the laws and rules that apply in each of those locations.

Correct Answer: C. The organisation and structure of the compliance function and its responsibilities. When a bank operates internationally, the way its compliance function is set up and what it is responsible for must align with the laws and rules of the local jurisdiction.

Correct Answer: B. The local businesses. In banks operating in multiple countries, the local business units are responsible for making sure that individuals with the right local understanding and skills handle the specific compliance duties for that region.

Correct Answer: B. The head of compliance in co-operation with the bank’s other risk management functions. The head of compliance, working together with other risk management areas of the bank, supervises the local business units to ensure compliance duties are fulfilled in different countries.

Correct Answer: B. Observing proper standards of market conduct, managing conflicts of interest, settling Government taxes, treating customers fairly, and ensuring suitability of customer advice. Banking regulations and standards typically address issues like behaving appropriately in the market, handling situations where different interests conflict, paying taxes, treating customers justly, and giving suitable advice to customers.

Correct Answer: B. Statutory Compliance to Acts like Banking Regulation Act, RBI Act, FEMA, PMLA, etc. The scope of the compliance function includes ensuring adherence to laws such as the Banking Regulation Act, Reserve Bank of India Act, Foreign Exchange Management Act, and Prevention of Money Laundering Act.

Correct Answer: A. Regulatory Compliance to guidelines issued by regulators such as RBI, SEBI, IRDA. The compliance function’s scope covers following the rules and guidelines issued by regulatory bodies like the Reserve Bank of India, Securities and Exchange Board of India, and Insurance Regulatory and Development Authority.

Correct Answer: C. Ensuring operational implementation in terms of statutory guidelines. A key responsibility involves creating and updating compliance rules with other departments and making sure they are put into practice according to legal guidelines.

Correct Answer: C. Statutory guidelines. The operational implementation of compliance rules for banking activities must align with legal requirements.

Correct Answer: B. KYC-AML-CFT guidelines. The creation and updating of compliance rules includes specific guidelines related to Know Your Customer, Anti-Money Laundering, and Countering Financing of Terrorism.

Correct Answer: B. Deposits and Services. The scope of formulating and updating compliance rules extends to the areas of accepting deposits and providing various banking services.

Correct Answer: A. Advances. The operational implementation of compliance rules covers the bank’s lending activities, referred to as advances.

Correct Answer: B. FEMA Guidelines. The rules related to the Foreign Exchange Management Act are included when creating and updating compliance rules for banking operations.

Correct Answer: B. The act of adherence to laws, rules, regulations, and various codes of conduct. Compliance in banking means following the applicable laws, rules, regulations, and different codes of conduct, including voluntary ones.

Correct Answer: B. Following the organisation’s own internal rules, policies, procedures, and acting ethically. Besides external mandates, adhering to the bank’s own internal rules, policies, and acting in accordance with ethical standards is considered just as important for compliance.

Correct Answer: B. Fair practices codes, managing conflicts of interests, and treating customers fairly. A robust compliance culture should promote following fair conduct guidelines, effectively handling situations where interests conflict, and ensuring customers are treated justly.

Correct Answer: B. Delivering efficient customer service and nurturing customer trust. The broader aim of adhering to fair practices and treating customers well is to provide effective service and build trust with customers.

Correct Answer: B. Standards of integrity and ethical conduct. Compliance should involve more than just fulfilling legal obligations; it should also include upholding principles of honesty and moral behaviour.

Correct Answer: B. Existing RBI guidelines to banks and the banks’ own standards of internal governance. The way compliance is handled and structured in Indian banks is mainly influenced by current Reserve Bank of India guidelines and the banks’ own internal management standards.

Correct Answer: B. It has to be adequately enabled and made sufficiently independent. The compliance function needs to be given enough resources and autonomy to operate effectively.

Correct Answer: B. For identifying, evaluating, and addressing legal and reputational risks. The area of compliance is seen as crucial because it helps banks spot, assess, and handle risks related to legal issues and their public image.

Correct Answer: B. A strong group/enterprise-wide compliance programme. Due to the importance of legal and reputational risks, having a strong compliance programme that covers the entire bank or banking group is considered essential.