Advanced-CAMS-Audit Advanced CAMS-Audit Certification Exam Questions and Answers

Answer:B. Improper identification and assessment of risk creates deficiencies resulting in an overall weakened AML compliance program.

Reason for Overvaluation/Undervaluation:

This technique is often used in trade-based money laundering to transfer funds or value disguised as legitimate trade transactions.

Auditor's Responsibility:

Auditors must ensure such discrepancies are detected, escalated, and adequately addressed to prevent money laundering​​.

CAMS-Audit Insight:

Advanced CAMS-Audit emphasizes vigilance in trade finance as a high-risk area for money laundering activities​​.

Outsourced Training Oversight Requirements:

CAMS-Audit emphasizes that institutions must ensure outsourced providers deliver training aligned with internal policies and regulatory standards​​.

Control Mechanisms for Outsourced AML Providers:

The bank must have controls in place to:

Review the content of training sessions.

Validate trainer qualifications.

Assess the effectiveness of training through feedback or testing.

Deficiencies in the Current Approach:

Failure to implement verification mechanisms for outsourced training compromises the consistency and quality of the AML education program.

Regulatory Requirements:

FATF and Basel guidelines mandate oversight of third-party service providers, especially for critical functions like AML compliance training​​.

Audits are primarily designed to evaluate the adequacy and effectiveness of controls within a risk management framework. This includes assessing whether the controls are properly designed and functioning to mitigate identified risks effectively.

CAMS-Audit guidance highlights the critical role of controls in ensuring compliance with AML/CFT regulations and managing operational risks​​.

C:The purpose and intended nature of the business relationship are fundamental elements of customer due diligence (CDD) and should be reviewed in the risk assessment process to understand the rationale behind the customer's activities and their alignment with expected patterns​​.

D:Identifying and verifying the ultimate beneficial owners (UBOs) is a core principle of the KYC process to ensure transparency and mitigate risks related to hidden ownership or illicit activities​​.

Importance of Coverage Assessment:

Coverage assessment ensures that the TM scenarios address the full spectrum of identified money laundering (ML) and terrorist financing (TF) risks relevant to the organization.

This aligns with FATF Recommendations on risk-based approaches and the effectiveness of transaction monitoring systems​​.

Key Reference Justification:

Basel Committee guidelines stress that financial institutions must regularly review their transaction monitoring coverage to ensure alignment with the risk landscape​​.

Severity Justification:

Infrequent updates of sanction lists create significant risks of missing sanctioned entities, increasing legal, financial, and reputational risks for the institution.

FATF Recommendations emphasize the need for timely and accurate sanctions screening to prevent facilitation of sanctioned transactions​​.

Critical Evidence:

A delayed update to sanction lists is cited as a key failure point in regulatory penalties and compliance audits​​.

Key Roles and Responsibilities:

Identifying compliance coordinators helps auditors understand the operational framework and ensure clear accountability in managing day-to-day AML compliance activities.

Initial Review Focus:

This step provides a foundational understanding of the institution's compliance structure, enabling targeted assessments of other program components.

Advanced CAMS-Audit Reference:

CAMS-Audit emphasizes that the effectiveness of an AML program hinges on having designated individuals who oversee compliance processes​​.

Higher Sample Size Justification:

A fluctuating international customer base increases the complexity of correspondent banking relationships and sanctions compliance, necessitating a larger sample to assess risks effectively​​.

Irrelevant Options:

B and D:Stable or localized environments reduce complexity, lowering sample size needs.

C:Domestic mergers affect customer risk profiles but are less volatile than fluctuating international markets.

Understanding Client Risk Scoring Methodology:

Reviewing the AML risk assessment offers a comprehensive view of the institution’s client base, risk appetite, and segmentation strategies.

Preparation Steps:

Assessing the AML risk assessment ensures that auditors understand the institution’s framework for categorizing and managing client risks.

Importance in CAMS-Audit Framework:

CAMS-Audit highlights the necessity of linking client risk scoring to the broader institutional AML risk assessment​​.

Testing Operating Effectiveness:

Operating effectiveness testing evaluates whether controls and systems are functioning as intended on a daily basis, including the accuracy and reliability of automated validation processes.

Relevance to Data Validation:

The auditor’s role in this scenario ensures that the data flowing into the monitoring software is accurate and aligned with operational requirements, reflecting day-to-day effectiveness.

CAMS-Audit Emphasis:

The emphasis on ongoing operational validation is consistent with Advanced CAMS-Audit practices, which stress continuous monitoring of AML system effectiveness​​.

Steps to Assess the External Review Report:

Validate the scope, methodology, and findings of the external review to determine its adequacy and reliability.

Identify any gaps or areas that require additional scrutiny by internal audit.

Rationale for Review Instead of Reliance:

Relying solely on external reviews without validation risks overlooking key compliance deficiencies. Internal audit must establish an independent assessment to corroborate findings​​.

CAMS-Audit Recommendations:

CAMS-Audit stresses the importance of critical evaluation of third-party reports and ensuring internal audit findings align with organizational compliance priorities​​

Transaction Monitoring Effectiveness:

A. Data Quality: Accurate data mapping ensures scenarios detect relevant risks, reducing errors in monitoring​​.

D. False Positives: Monitoring false positive ratios improves system efficiency and minimizes unnecessary alerts​​.

Purpose of the Document:

This document is a management tool to ensure accountability and monitor the progress of resolving outstanding audit findings.

Audit Committee's Role:

The document facilitates oversight by the audit committee, ensuring timely and effective resolution of recommendations.

CAMS-Audit Recommendations:

Proper tracking mechanisms are emphasized to align audit processes with institutional and regulatory expectations​​.

Key Assessment Factors for AML Structure Changes:

Staffing levels ensure the AML department has adequate resources to meet its obligations, especially in light of new responsibilities or organizational changes​​.

Irrelevant Options:

A:Interaction with internal audit is important but not directly tied to structural changes.

C:Changes in board members are governance-related, not operational AML concerns.

D:Reporting lines are relevant but secondary to resource adequacy.

Capabilities of CAAT:

CAAT provides comprehensive data access, allowing auditors to review all customer data over extended periods, unlike traditional methods that rely on sampling​​.

Irrelevant Options:

A:Limited samples are more typical of traditional methods.

B:Data incorporated in the warehouse should not be changeable as it would undermine audit integrity.

D:CAAT can be customized for specific audit needs.

Definition of Residual Risk:

Residual risk is the risk that remains after controls are implemented to mitigate inherent risks.

It reflects the effectiveness of controls and highlights areas requiring further attention.

Relevance in Risk Management:

Evaluating residual risk helps determine whether existing controls adequately address the identified risks.

CAMS-Audit Best Practices:

Auditors must assess residual risk as part of the broader risk management framework to ensure regulatory compliance and operational resilience​​.

A:Regularly updating lists of high- and medium-risk countries ensures that customer risk profiles align with the most current geopolitical and economic risks​​.

E:Periodic updates to customer risk profiles, based on their assigned risk level, are critical for maintaining an accurate and dynamic risk assessment system​​.

Adverse news provides context on potential risks associated with the customer, while historical transaction data is critical for understanding patterns that may indicate suspicious activity.

Answer:A. Management took appropriate and timely action to address any violations and other deficiencies.

KYC integration is fundamental to ensuring that anti-money laundering controls are effective from the outset of client onboarding. Delayed implementation of KYC increases the risk of onboarding high-risk customers without adequate due diligence.

Advanced CAMS-Audit documentation stresses the importance of embedding KYC into business processes during product design and rollout phases to mitigate risks​​​.

Neglecting this requirement can expose the organization to severe regulatory penalties and reputational damage.

Conditions for Closing Audit Findings:

Findings can only be closed when the corrective actions identified in response to the audit findings are implemented and verified as effective.

This includes addressing underlying risks and documenting the resolution process.

CAMS-Audit Best Practices:

The audit process must ensure that all follow-up actions mitigate the identified risks, aligning with regulatory and operational standards​​.

AML Compliance Policy Elements:

A. Record Keeping: Essential for regulatory compliance, ensuring accurate data retention for audits and investigations​​.

B. Suspicious Activity Reporting: A core AML requirement, mandated by FATF recommendations to identify and report suspicious transactions​​.

E. Training Requirements: Ensures staff understand their AML obligations, as highlighted in Basel and FATF guidelines​​.