Due Diligence Requirements

Question 1

Simplified Due Diligence (SDD) may be applied when the risk of ML/TF is:
A. Demonstrably low
B. Moderate
C. High
D. Uncertain

Answer 1

A. Demonstrably low
Explanation: SDD is only permitted where a client or transaction presents a very low ML/TF risk, such as public authorities or listed companies

Question 2

Enhanced Due Diligence (EDD) is required for clients who are:
A. Employees of the firm
B. Registered charities
C. High-risk domestic retail consumers
D. Politically Exposed Persons (PEPs)

Answer 2

D. Politically Exposed Persons (PEPs)
Explanation: PEPs and their close associates/family members automatically trigger EDD measures

Question 3

Under EDD, which measure is specifically required?
A. Annual report to the FCA
B. Senior-management approval before onboarding
C. Exemption from transaction monitoring
D. Simplified identification checks

Answer 3

B. Senior-management approval before onboarding
Explanation: EDD mandates senior-management sign-off for higher-risk clients or transactions

Question 4

Which of the following is a permissible SDD category?
A. Shell corporations in high-risk jurisdictions
B. Major stock-exchange listed companies
C. Unverified private trusts
D. PEP-owned businesses

Answer 4

B. Major stock-exchange listed companies
Explanation: Listed companies with transparent ownership are low-risk, qualifying for SDD

Question 5

A firm acts for a central bank client. To apply SDD, they must:
A. Conduct only basic ID checks and record the low-risk rationale
B. Skip all CDD requirements
C. Immediately file a SAR
D. Apply full EDD measures

Answer 5

A. Conduct only basic ID checks and record the low-risk rationale
Explanation: Public authorities in well-regulated jurisdictions permit SDD with documented rationale

Question 6

A client purchases art for €3M via an offshore shell company. The firm should:
A. Apply Simplified Due Diligence
B. Apply Enhanced Due Diligence
C. Treat as low-risk and proceed
D. Refuse to act

Answer 6

B. Apply Enhanced Due Diligence
Explanation: High-value goods transactions and opaque ownership trigger EDD .

Question 7

A regulated credit institution requests services. Under MLR 2017, the firm may:
A. Use SDD, documenting that the institution is subject to equivalent AML rules
B. Use SDD without documentation
C. Automatically apply EDD
D. Refuse to onboard

Answer 7

A. Use SDD, documenting that the institution is subject to equivalent AML rules
Explanation: Regulated financial institutions may qualify for SDD if risks are low and rationale recorded

Question 8

A client’s risk profile changes after a negative media report. The firm should:
A. Downgrade to SDD
B. Maintain existing checks
C. Upgrade to EDD and update documentation
D. Cease monitoring entirely

Answer 8

C. Upgrade to EDD and update documentation
Explanation: Significant new risk factors require enhanced measures and updated records

Question 9

Which of these is NOT a valid EDD step?
A. Source-of-funds verification
B. Enhanced transaction monitoring
C. Delegating due diligence entirely to the client
D. Senior-management approval

Answer 9

C. Delegating due diligence entirely to the client
Explanation: EDD requires active measures by the firm; delegation without oversight is not permitted

Question 10

A PEP’s family member is onboarding. Which additional EDD measure applies?
A. No extra measures—treat as standard client
B. Interview the family member about their political role
C. Obtain senior-management approval and conduct enhanced monitoring
D. Apply SDD because they are not the PEP

Answer 10

C. Obtain senior-management approval and conduct enhanced monitoring
Explanation: Close associates/family of PEPs require the same EDD measures as PEPs themselves

Question 10

Under SDD, how often must the firm review the low-risk justification?
A. Quarterly
B. Annually
C. Every two years
D. Never

Answer 10

B. Annually
Explanation: Even under SDD, periodic (e.g. annual) reviews are required to confirm risk remains low

Question 11

Which of the following entities would most likely never qualify for SDD?
A. UK government department
B. FTSE-100 listed company
C. Private trust with unknown beneficiaries
D. FCA-authorised bank

Answer 11

C. Private trust with unknown beneficiaries
Explanation: Opaque structures without clear beneficial ownership cannot use SDD due to higher ML risk