CBP Professional Ethics in Banking 2 — Questions and Answers
Question 1: A bank employee discovers that a colleague is sharing confidential customer account information with a third-party vendor without authorization. What is the employee's primary ethical obligation?
- Confront the colleague privately and ask them to stop
- Report the breach to compliance or a supervisor immediately (Correct answer)
- Document the incident and wait to see if it continues
- Ignore it if the vendor is a known business partner
Correct answer: Report the breach to compliance or a supervisor immediately
Unauthorized disclosure of confidential customer information is a serious compliance violation that must be reported immediately to compliance or management.
Question 2: Under the ethical principle of 'know your customer' (KYC), a banker's primary responsibility is to:
- Maximize sales by targeting high-net-worth clients
- Verify customer identity and assess suitability of products (Correct answer)
- Collect as much personal data as possible for marketing
- Approve all transactions to avoid customer dissatisfaction
Correct answer: Verify customer identity and assess suitability of products
KYC requires bankers to verify identity, understand customer needs, and ensure products offered are appropriate and suitable.
Question 3: A loan officer approves a personal loan for a friend despite the friend not meeting the bank's creditworthiness criteria. This behavior is an example of:
- Relationship banking
- Preferential treatment and a conflict of interest (Correct answer)
- Flexible credit policy application
- Reasonable exceptions management
Correct answer: Preferential treatment and a conflict of interest
Approving loans for friends who do not meet credit criteria constitutes preferential treatment and a clear conflict of interest.
Question 4: Which of the following best describes the concept of 'fiduciary duty' as it applies to banking professionals?
- The obligation to maximize the bank's profits above all else
- The legal and ethical obligation to act in the best interest of the client (Correct answer)
- The requirement to follow all internal bank policies without exception
- The duty to report all customer activities to regulators
Correct answer: The legal and ethical obligation to act in the best interest of the client
Fiduciary duty obligates banking professionals to prioritize the client's best interests over personal gain or institutional profit.
Question 5: When a bank employee receives an expensive gift from a client seeking favorable loan terms, the ethical course of action is to:
- Accept the gift but recuse from the loan decision
- Decline the gift and report it per the bank's gift policy (Correct answer)
- Accept it as a token of appreciation since no promise was made
- Return the gift only if the loan is ultimately denied
Correct answer: Decline the gift and report it per the bank's gift policy
Accepting gifts from clients seeking favorable treatment creates a conflict of interest; the gift must be declined and reported per policy.
Question 6: An investment banker possesses material non-public information about an upcoming merger. Trading on this information would violate which ethical and legal principle?
- Suitability requirement
- Insider trading prohibition (Correct answer)
- Anti-money laundering rules
- Capital adequacy standards
Correct answer: Insider trading prohibition
Trading on material non-public information constitutes insider trading, which is both unethical and illegal under securities laws.
Question 7: A bank's code of conduct requires employees to report unethical behavior. An employee who fails to report a known violation is said to be engaging in:
- Passive compliance
- Complicity through inaction (Correct answer)
- Ethical neutrality
- Reasonable deniability
Correct answer: Complicity through inaction
Failing to report known violations makes the employee complicit, as silence enables and perpetuates unethical conduct.
CBP Professional Ethics in Banking 2
A bank employee discovers that a colleague is sharing confidential customer account information with a third-party vendor without authorization.
What is the employee's primary ethical obligation?