Top 100 Compliance Interview Questions & Answers

# 1. Introduction to Compliance & Financial Crime

1. What is financial crime compliance?

- A set of policies, procedures, and controls to prevent money laundering, fraud, terrorist financing, bribery, and
corruption.

2. What are the key components of an effective compliance program?

- Risk assessment, policies & procedures, transaction monitoring, regulatory reporting, and internal audits.

3. What is the difference between AML and KYC?

- KYC is the process of verifying customer identity, while AML includes broader efforts to prevent financial crimes.

4. What is the first line of defense in financial crime compliance?

- Business units conducting due diligence and monitoring transactions.

5. What is the role of a Compliance Officer?

- Ensuring regulatory compliance, conducting risk assessments, and reporting suspicious activities.

# 2. KYC (Know Your Customer) & Due Diligence

6. What are the key stages of KYC?

- Customer identification, risk assessment, ongoing monitoring.

7. What is the difference between CDD and EDD?

- Customer Due Diligence (CDD) is standard verification, while Enhanced Due Diligence (EDD) is for high-risk
customers.

8. Why is periodic KYC review important?

- To update risk profiles and detect suspicious activities.

9. What is beneficial ownership in KYC?

- Identifying individuals who ultimately control an entity (owning 25% or more).

10. What are PEPs (Politically Exposed Persons)?

- Individuals with political influence, requiring enhanced due diligence.

# 3. AML (Anti-Money Laundering) & Transaction Monitoring

11. What are the three stages of money laundering?

- Placement, layering, integration.

12. What is a Suspicious Activity Report (SAR)?

- A report filed with authorities for transactions indicating possible financial crime.

13. What is structuring or smurfing?

- Breaking large transactions into smaller amounts to avoid reporting thresholds.

14. What are common red flags in transaction monitoring?

- Large cash deposits, rapid fund movements, transactions below reporting thresholds.
15. How do AI and machine learning help in AML?
- They improve transaction monitoring by identifying hidden patterns and anomalies.

# 4. Sanctions Screening & OFAC Compliance

16. What is OFAC?

- The Office of Foreign Assets Control, which enforces US sanctions.

17. What is the difference between primary and secondary sanctions?

- Primary sanctions apply directly; secondary sanctions target those dealing with sanctioned entities.

18. How do financial institutions comply with sanctions regulations?

- By screening customers and transactions against sanction lists.

19. What is the SWIFT system's role in sanctions compliance?

- Facilitates global payments and helps detect sanctioned entities.

20. What is a sanctions watchlist?

- A list of individuals, entities, and countries subject to restrictions.

# 5. Fraud Detection & Financial Crime Risk Management

21. What are the types of financial fraud?

- Identity fraud, insider fraud, cyber fraud, wire fraud.

22. How do you detect fraudulent transactions?

- Through anomaly detection, pattern recognition, and customer behavior analysis.

23. What is insider fraud?

- Financial crime committed by employees within an organization.

24. What is the role of forensic accounting in financial crime investigations?

- Analyzing financial records to detect fraud.

25. How do risk-based approaches help in financial crime prevention?

- They allocate more resources to high-risk customers and transactions.

# 6. Regulatory Compliance & Reporting

26. What is the FATF?

- The Financial Action Task Force, which sets global AML standards.

27. What is the FATF Grey List?

- A list of countries with AML/CFT deficiencies.

28. What is the difference between AML and CFT?

- AML focuses on money laundering, while CFT targets terrorist financing.

29. What are regulatory obligations for financial institutions?

- KYC compliance, SAR filing, customer risk assessments.

30. What is the Basel Committee on Banking Supervision (BCBS)?

- A global banking regulatory authority setting compliance guidelines.
# 7. Cryptocurrency & Digital Assets Compliance

31. What is the biggest AML risk in cryptocurrencies?

- Anonymity and cross-border transactions.

32. What is the Travel Rule in crypto compliance?

- Requires exchanges to share sender/receiver details for large transactions.

33. How do DeFi platforms pose financial crime risks?

- Lack of centralized oversight makes them vulnerable to money laundering.

34. What is a crypto tumbling service?

- A service that mixes crypto transactions to obfuscate origins.

35. How can blockchain be used for AML compliance?

- By providing transparent transaction records for forensic analysis.

# 8. Ethics, Corporate Governance, & Emerging Trends

36. What is corporate governance in financial crime compliance?

- Ensuring ethical decision-making and accountability in compliance programs.

37. What are ESG (Environmental, Social, Governance) factors in compliance?

- Ethical practices in business, including anti-bribery and corruption policies.

38. What is RegTech?

- Technology that automates regulatory compliance tasks.

39. How do financial institutions handle whistleblowing?

- Through anonymous reporting channels and protection policies.

40. What are future trends in AML compliance?

- AI-driven monitoring, real-time transaction screening, increased regulatory oversight.

# 9. Scenario-Based & Behavioral Interview Questions

41. Tell me about a time you identified suspicious activity.

- Explain the case, investigation process, and resolution.

42. How do you handle pressure in a compliance role?

- Prioritizing tasks based on risk impact.

43. How do you stay updated on regulatory changes?

- Reading FATF reports, industry publications, attending training.

44. Give an example of how you improved compliance processes in your past role.
- Share a workflow optimization or policy enhancement example.

45. Why do you want to work in compliance?

- Interest in risk management, preventing financial crime, and regulatory adherence.

# 10. Advanced AML & KYC Concepts

46. What is perpetual KYC?
- Continuous monitoring and updating of customer information instead of periodic reviews.

47. How do you assess customer risk in KYC?

- Using factors like geographic location, business activity, transaction patterns, and PEP status.

48. What is Trade-Based Money Laundering (TBML)?

- Laundering money through fraudulent trade transactions, such as over-invoicing or under-invoicing.

49. What is the Wolfsberg Group?

- An association of banks that sets AML and financial crime compliance standards.

50. How does correspondent banking increase AML risks?

- Banks process transactions for foreign institutions, increasing exposure to unknown risks.

# 11. Transaction Monitoring & Investigations

51. What is an AML typology?

- A pattern of money laundering activities commonly used by criminals.

52. What is the role of AI in transaction monitoring?

- Identifying complex patterns, reducing false positives, and improving efficiency.

53. What is an RFI (Request for Information) in financial crime compliance?

- A request sent to clients or institutions for additional details on a suspicious transaction.

54. What is Negative News Screening (NNS)?

- Screening customers and entities against adverse media reports.

55. What is a 314(a) request in AML compliance?

- A USA PATRIOT Act provision allowing law enforcement to request financial institution records.

# 12. Regulatory Reporting & Compliance Frameworks

56. What is the EU's 6th Anti-Money Laundering Directive (6AMLD)?

- Strengthens AML rules by increasing liability for money laundering crimes.

57. What is FinCEN and its role?

- The Financial Crimes Enforcement Network, a U.S. government agency overseeing AML compliance.

58. What is a Currency Transaction Report (CTR)?

- A report filed for cash transactions exceeding regulatory thresholds.

59. What is the Bank Secrecy Act (BSA)?

- A U.S. law requiring financial institutions to detect and report money laundering activities.

60. What is the Financial Action Task Force (FATF) 40 Recommendations?

- A global set of AML/CFT guidelines for financial institutions.

# 13. Sanctions Compliance & International Regulations

61. What is dual-use goods in sanctions compliance?

- Items with both civilian and military applications that may be restricted.
62. What is the difference between UN and U.S. sanctions?
- UN sanctions are globally agreed upon, while U.S. sanctions can be unilateral.

63. What is the meaning of "secondary sanctions"?

- Sanctions imposed on non-U.S. entities dealing with sanctioned parties.

64. What is an SDN (Specially Designated Nationals) List?

- A list maintained by OFAC identifying individuals and entities subject to sanctions.

65. How do financial institutions screen transactions for sanctions compliance?

- Using automated screening tools against sanction lists like OFAC, EU, and UN.

# 14. Emerging Risks in Financial Crime Compliance

66. What are the AML risks in the metaverse?

- Anonymity in virtual economies can enable money laundering and fraud.

67. What is the biggest compliance risk with FinTech companies?

- Weak AML controls due to rapid customer onboarding and digital transactions.

68. How does DeFi (Decentralized Finance) impact AML compliance?

- DeFi platforms operate without intermediaries, making AML enforcement difficult.

69. What is a Central Bank Digital Currency (CBDC) and its compliance implications?
- A digital form of fiat currency that requires AML controls similar to traditional banking.

70. What are the challenges of cross-border AML compliance?

- Differing regulatory frameworks and difficulty in tracing international transactions.

# 15. Ethical Compliance & Whistleblowing

71. What is an effective whistleblowing policy?

- A confidential and secure mechanism for reporting compliance violations.

72. What is a culture of compliance?

- An organizational mindset where employees prioritize regulatory adherence.

73. How do companies prevent insider trading?

- By enforcing restricted trading periods and monitoring employee transactions.

74. What is the Foreign Corrupt Practices Act (FCPA)?

- A U.S. law prohibiting bribery of foreign officials.

75. How do you encourage ethical behavior in a compliance team?

- Training, leadership support, and strong internal controls.

# 16. Practical Compliance Scenarios

76. How would you handle a KYC case where the customer refuses to provide ID?
- Escalate the case and consider account closure if non-compliance persists.

77. What steps would you take if you found a false positive in sanctions screening?
- Verify details, conduct further due diligence, and document findings.
78. How would you respond to a regulator requesting a customer's transaction history?
- Follow company protocol, ensure data privacy compliance, and provide accurate records.

79. If a senior executive is suspected of financial misconduct, how would you handle it?
- Report to internal compliance leadership and follow whistleblower protection policies.

80. How do you ensure third-party vendors comply with AML regulations?
- Conduct risk assessments, require compliance attestations, and perform audits.

# 17. Behavioral & Leadership Questions

81. How do you manage competing deadlines in compliance roles?

- Prioritize based on regulatory urgency and business impact.

82. Tell me about a time you had to challenge unethical behavior.

- Describe the situation, your actions, and the outcome.

83. How do you stay updated with financial crime regulations?

- Reading industry reports, attending compliance training, and networking.

84. Describe a time when you identified an improvement in compliance processes.

- Explain how you enhanced efficiency or reduced risk.

85. What skills make you a strong compliance professional?

- Attention to detail, analytical thinking, regulatory knowledge, and risk assessment.

# 18. Future of Compliance Careers

86. What is the biggest compliance challenge financial institutions will face in the next 5 years?
- Managing financial crime risks in digital and decentralized ecosystems.

87. How does automation impact compliance roles?

- Increases efficiency but requires human oversight for complex investigations.

88. What is the impact of open banking on AML compliance?

- More data sharing requires enhanced customer authentication and monitoring.

89. How do ESG regulations impact financial crime compliance?

- Greater focus on ethical supply chains and anti-bribery measures.

90. Why do you want to build a career in compliance?

- Passion for regulatory integrity, financial crime prevention, and ethical business practices.

# 19. Advanced Compliance Knowledge

91. What is a money mule and how is it detected?

- A person moving illicit funds; detected through unusual transaction patterns.

92. What is the role of FATCA in compliance?

- The Foreign Account Tax Compliance Act requires reporting on foreign assets held by U.S. taxpayers.

93. What is the Basel III framework in banking compliance?

- A regulatory framework improving risk management and capital requirements.
94. What is the impact of GDPR on AML compliance?
- Data privacy laws affect customer due diligence and transaction monitoring.

95. How do AI and big data improve AML investigations?

- Enhance fraud detection through predictive analytics and behavioral profiling.

# 20. Final Compliance Insights

96. What is shadow banking and its AML risks?

- Unregulated financial activities outside traditional banking, increasing ML risks.

97. What is an example of a high-profile AML enforcement case?

- HSBC's 2012 $1.9 billion fine for money laundering failures.

98. What is the role of an FIU (Financial Intelligence Unit)?

- Collects, analyzes, and shares suspicious financial activity with law enforcement.

99. How does cybercrime intersect with AML compliance?

- Criminals use cyber fraud to generate illicit funds requiring AML controls.

100. What advice would you give to someone starting in compliance?

- Develop regulatory knowledge, analytical skills, and a strong ethical foundation.