Free ICA Certificate in KYC and CDD Practice Questions

Sample Practice Questions

Try these 10 sample questions from the ICA Certificate in KYC and CDD practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1What is customer due diligence principally designed to establish?

   1. A.Who a customer is and the risks of the relationshipCorrect answer: A
   2. B.Whether a customer will repay every loan
   3. C.Whether a product will outperform the market
   4. D.How much revenue a customer will generate

   Explanation: The source states: "checks businesses must do on their customers and, where applicable, beneficial owners.". CDD establishes customer knowledge and associated financial crime risk, rather than credit, investment performance or sales forecasts.

   Reference: HMRC: Customer due diligence (AMLG11300) — 13.1

2. 2What is the central principle of a risk-based AML/CFT approach?

   1. A.Adjust preventive measures to assessed riskCorrect answer: A
   2. B.Assign the same CDD intensity to every customer
   3. C.Set CDD intensity by customer revenue alone
   4. D.Exempt small accounts without assessing their risk

   Explanation: The source states: "measures to prevent or mitigate money laundering and terrorist financing are proportionate to the risks identified.". FATF's RBA requires proportionality to identified risk; uniformity, revenue-only decisions and unassessed exemptions do not implement that principle.

   Reference: FATF Recommendations — Recommendation 1

3. 3For a company customer, which evidence can establish its legal form and existence?

   1. A.A reliable certificate of incorporation for the companyCorrect answer: A
   2. B.An authorised signatory's personal identity card
   3. C.A beneficial owner's personal passport
   4. D.A director's proof of personal residential address

   Explanation: The source states: "a certificate of incorporation". A certificate of incorporation evidences the company's own name, form and existence. The other documents concern individuals connected with it.

   Reference: FATF Recommendations — Interpretive Note to Recommendation 10, paragraph 5(a)(i)

4. 4Where permitted reliance on a third party is used for CDD, who retains ultimate responsibility?

   1. A.The financial institution relying on the third partyCorrect answer: A
   2. B.The customer who selected the introducing institution
   3. C.The third party alone once it sends a referral
   4. D.The external auditor that later reviews the file

   Explanation: The source states: "the ultimate responsibility for CDD measures remains with the financial institution relying on the third party.". Reliance does not transfer the relying institution's ultimate CDD responsibility.

   Reference: FATF Recommendations — Recommendation 17

5. 5How should customer acceptance policy balance financial crime risk with access to banking?

   1. A.Use proportionate CDD without unnecessarily excluding disadvantaged peopleCorrect answer: A
   2. B.Refuse disadvantaged applicants even where their risks can be managed
   3. C.Waive identity checks for disadvantaged applicants regardless of risk
   4. D.Apply the highest-risk procedures to disadvantaged applicants as a class

   Explanation: The source states: "the customer acceptance policy is not so restrictive that it results in a denial of banking services to the general public, especially individuals who are financially or socially disadvantaged.". Basel cautions against unnecessarily restrictive customer acceptance while retaining risk-proportionate due diligence; neither blanket exclusion nor blanket waiver follows.

   Reference: Basel Committee: Anti-money laundering and counter-terrorist financing — AFS10.24

6. 6Under FATF Recommendation 10, which event requires CDD even without a large transaction?

   1. A.Reading product terms before choosing an institution
   2. B.Starting a continuing banking relationshipCorrect answer: B
   3. C.Sending a product enquiry without becoming a customer
   4. D.Requesting a general quotation without a transaction

   Explanation: The source states: "establishing business relations;". Establishing business relations is the specified trigger; the other choices describe preliminary enquiries without a relationship or transaction.

   Reference: FATF Recommendations — Recommendation 10

7. 7What does a risk-based approach allow a firm to target more effectively?

   1. A.Allocation of trading assets based on expected returns
   2. B.Allocation of AML/CFT staff and control resourcesCorrect answer: B
   3. C.Allocation of dividend payments among shareholders
   4. D.Allocation of lending limits based on creditworthiness

   Explanation: The source states: "target their resources more effectively". The AML/CFT risk-based approach targets prevention resources more effectively; commercial capital, credit and investment allocations have different objectives.

   Reference: FATF Recommendations — Introduction

8. 8Which information helps identify the powers governing a company customer?

   1. A.Its beneficial owner's tax identification number
   2. B.Its memorandum and articles of associationCorrect answer: B
   3. C.Its largest shareholder's identity document
   4. D.Its authorised signatory's residential address

   Explanation: The source states: "The powers that regulate and bind the legal person or arrangement (e.g. the memorandum and articles of association of a company)". The memorandum and articles concern the powers governing and binding the company; personal identifiers for connected individuals address different CDD questions.

   Reference: FATF Recommendations — Interpretive Note to Recommendation 10, paragraph 5(a)(ii)

9. 9When relying on a third party, when should a financial institution obtain the necessary core CDD information?

   1. A.At relationship closure
   2. B.ImmediatelyCorrect answer: B
   3. C.At the annual review
   4. D.After an STR is filed

   Explanation: The source states: "should immediately obtain the necessary information". Recommendation 17(a) requires immediate receipt of the necessary core CDD information, not deferral to review, reporting or closure.

   Reference: FATF Recommendations — Recommendation 17(a)

10. 10A bank offers a confidential numbered account. What does Basel say about the customer's identity?

    1. A.It may be replaced by the account number for all CDD purposes
    2. B.It must still be verified and known to enough staff for effective CDDCorrect answer: B
    3. C.It may remain unknown to the bank if the account has a number
    4. D.It need only be disclosed to the customer personally

    Explanation: The source states: "their identity must be verified by the bank and be known to enough staff to allow for effective due diligence". Confidentiality limits exposure of identity; it does not remove identity verification and necessary staff access.

    Reference: Basel Committee: Anti-money laundering and counter-terrorist financing — AFS10.35