Compliance Technology & RegTech Flashcards

A compliance officer wants to use natural language processing (NLP) to monitor employee communications. What is the PRIMARY regulatory concern with this approach?

Answer: Data privacy and employee surveillance laws

NLP-based communication monitoring must comply with data privacy regulations and employee surveillance laws such as GDPR and the Electronic Communications Privacy Act.

Which RegTech capability is MOST useful for automating the mapping of internal controls to multiple regulatory frameworks simultaneously?

Answer: Regulatory change management software with cross-framework tagging

Regulatory change management software with cross-framework tagging allows a single control to be mapped to multiple regulations, reducing duplication and effort.

A bank deploys an AI model to make credit decisions. Under the Equal Credit Opportunity Act (ECOA), what must the bank be able to provide to a denied applicant?

Answer: Specific reasons for the adverse action

ECOA requires creditors to provide specific reasons for adverse action, which means AI credit models must be explainable enough to generate meaningful reason codes.

What is 'regulatory sandboxing' in the context of RegTech?

Answer: A controlled testing environment where regulators allow firms to test innovations with reduced regulatory burden

Regulatory sandboxes are controlled environments where regulators permit fintech and RegTech firms to test innovative products with relaxed regulatory requirements under supervision.

Which metric is MOST important when evaluating a transaction monitoring system's effectiveness in an AML program?

Answer: False positive rate and false negative rate balance

Balancing false positives (unnecessary investigations) and false negatives (missed suspicious activity) is the key measure of a transaction monitoring system's effectiveness.

A firm uses robotic process automation (RPA) to file regulatory reports. Who retains ultimate accountability for the accuracy of those filings?

Answer: The firm and its designated compliance officer

Automation does not transfer regulatory accountability; the firm and its compliance officer remain responsible for the accuracy and timeliness of all regulatory submissions.

What does 'data lineage' mean in a compliance data management context?

Answer: Tracking the origin, movement, and transformation of data throughout its lifecycle

Data lineage documents where data comes from, how it moves, and how it changes, which is critical for audit trails and regulatory reporting accuracy.