An analyst at a virtual asset service provider (VASP) that white-labels its exchange solution to other
cross-border VASPs is developing a VASP onboarding procedure. Under Financial Action Task Force
Recommendation 13, which CDD practices should be applied to such relationships? (Select Three.)
C, D, E
Explanation:
FATF Recommendation 13 (Correspondent Banking and Similar Relationships) and its application to
VASP–VASP relationships require enhanced due diligence before onboarding. This is because such
arrangements carry elevated ML/TF risk, especially in cross-border settings.
Required CDD practices include:
Assess the nature and purpose of the VASP relationship (C): Understand why the relationship is being
established and the expected services/products.
Obtain approval from senior management (D): Senior management oversight ensures risk is accepted
at the appropriate governance level.
Assess the VASP’s supervision and if a license/registration is needed (E): Confirm regulatory
oversight, licensing, and compliance with AML/CFT obligations.
Options A and B are not core FATF requirements for CDD in this context — local authority approval
may be a domestic regulatory requirement in some countries, but not a FATF baseline, and
profitability assessment is a business decision, not an AML measure.
A compliance officer is conducting a customer risk review. Which statements represent the highest
level of customer risk? (Select Two.)
B, D
Explanation:
When determining highest-risk customers under a risk-based approach, firms must consider
transaction patterns, jurisdictions, counterparties, and destinations:
B: Large deposits by a student, rapidly converting to crypto and sending to another VASP, suggest
potential layering and third-party funding risk.
D: Daily inbound transfers from a foreign VASP to a private (unhosted) wallet indicate consistent
high-risk exposure — especially cross-border transactions involving unregulated or weakly regulated
jurisdictions.
While VPN use (A) can be a red flag, on its own it is lower risk than significant suspicious fund flows.
Paying suppliers in crypto (C) can be legitimate for businesses. A large donation to a charity (E) could
be flagged depending on jurisdiction and cause, but is generally less inherently suspicious than B and
D unless linked to high-risk entities.
FATF, DFSA, and FSRA AML rules stress that ongoing monitoring should identify these high-frequency,
high-value, cross-border crypto flows as priority for Enhanced Due Diligence (EDD) and possible
Suspicious Transaction Reports (STRs).
Which token type should be considered as carrying the highest risk when assessing the AML risks
related to the customer's source of funds?
A
Explanation:
Privacy tokens are specifically designed to obfuscate transaction details such as sender, recipient,
and amounts, making them inherently high risk for money laundering and terrorist financing. Their
anonymity-enhanced features pose significant challenges to AML efforts.
Stablecoins (B), platform tokens (C), and security tokens (D) have varying risk profiles but generally
provide more transparency or are subject to regulatory frameworks, reducing inherent AML risk
compared to privacy tokens.
FATF and DFSA AML frameworks highlight privacy tokens as a priority for enhanced due diligence and
risk mitigation due to their abuse potential.
A compliance officer Is assigned a group of customers. Which action should the officer fake to
determine the appropriate level of customer due diligence apply to each customer?
D
Explanation:
A risk-based approach to customer due diligence requires considering all relevant risk factors
including customer profile, the nature and purpose of the account or relationship, geographic risks,
transaction patterns, and other relevant factors. This ensures that CDD intensity is commensurate
with assessed risk.
Assessing only location (A) or transaction thresholds (B) is insufficient alone. Applying uniform CDD
measures (C) contradicts the risk-based approach advocated by FATF and DFSA regulations.
DFSA AML guidance explicitly requires comprehensive risk assessment considering multiple variables
to determine appropriate due diligence levels.
According to me Financial Action Task Force's (FATF's> definition of virtual asset service provider
(VASP), for which activity is an entity required to be licensee or registered as a VASP in the
jurisdiction(s) where they are created?
B
Explanation:
FATF defines VASPs as entities that conduct certain specified activities involving virtual assets.
Licensing or registration as a VASP is required primarily for entities engaged in activities such as
safekeeping and/or administration of virtual assets or conducting exchanges between one or more
forms of virtual assets.
Cryptocurrency mining operations (A) and operating blockchain nodes (C) are generally excluded
from the VASP definition because they do not involve handling customer funds or providing financial
services. Virtual money service businesses (D) is a broader term that may include VASPs but not all
such businesses fall under VASP regulations unless they meet the activity criteria.
This aligns with the DFSA AML Module and FATF Recommendation 15, which regulate entities
providing virtual asset custody or exchange services to customers and require them to be licensed or
registered.
Misconfigured smart contracts can allow which type of scam to occur?
C
Explanation:
Misconfigured or poorly designed smart contracts can enable rug pull scams, where developers
create fraudulent decentralized finance (DeFi) projects or tokens and then withdraw liquidity or
funds abruptly, leaving investors with worthless assets.
Phishing (A) and SIM attacks (B) relate to social engineering and telecom fraud, respectively, and
ransomware (D) is malware demanding payment. Rug pulls specifically exploit smart contract
vulnerabilities.
The DFSA and AML thematic reviews on crypto highlight rug pull scams as a key operational and
financial crime risk linked to smart contract vulnerabilities.
Which advantage of the proof of work consensus algorithm is widely applicable in many
cryptocurrencies and other blockchain systems?
C
Explanation:
Proof of Work (PoW) consensus achieves network consensus by requiring participants (miners) to
solve complex cryptographic puzzles, which verifies transactions and secures the blockchain. This
computational work makes it difficult and costly to alter the blockchain.
Dependency on electricity (A) is a criticism rather than an advantage. PoW promotes decentralization
rather than centralization (B). It provides strong security for large networks rather than small ones
(D).
This principle is fundamental in Bitcoin and many other cryptocurrencies and is frequently referenced
in AML/CFT guidance to understand the transaction validation process and network security.
The lightning network is a payment protocol built on top of the Bitcoin blockchain that:
D
Explanation:
The Lightning Network is a second-layer payment protocol that enables off-chain transactions,
allowing users to conduct fast, low-fee Bitcoin payments without recording every transaction directly
on the Bitcoin blockchain. This improves scalability and reduces congestion.
It does not inherently facilitate large payments to decentralized exchanges (A), bridging assets across
blockchains (B), or guarantee zero transaction fees (C), though fees are significantly lower than on-
chain transactions.
The DFSA and FATF crypto guidance discuss such layer-2 solutions in the context of emerging
technological risks and monitoring challenges.
What Is the purpose of applying learning (ML) or artificial Intelligence (Al) within a compliance
framework? (Select two.)
B, D
Explanation:
Machine learning (ML) and artificial intelligence (AI) are applied within compliance frameworks to
enhance the efficiency of monitoring and detection processes and to allow skilled compliance
resources to focus on higher-value activities such as complex investigations and strategic decision-
making. ML/AI tools can process vast amounts of transaction data to identify suspicious patterns
faster than manual processes.
They do not reduce the fundamental requirement for risk assessment (A) nor are they intended
primarily to reduce headcount (C), but rather to optimize resource allocation.
AML and DFSA guidance emphasize leveraging technology to improve the effectiveness and
efficiency of AML controls while maintaining robust risk management.
What is the purpose of a security audit in reason to smart contracts?
D
Explanation:
The primary purpose of a security audit for smart contracts is to protect investors’ funds by
identifying vulnerabilities, coding errors, and weaknesses in the smart contract or underlying
protocol that could be exploited. This proactive approach helps prevent hacks, exploits, and financial
loss.
While performance issues (B) may be noted, the critical concern is security. Identifying bad actors (C)
is not within the scope of a code audit but is a broader operational issue. Copyright concerns (A) are
unrelated.
AML and crypto governance frameworks underline the importance of security audits to mitigate
operational risks in DeFi and other smart contract-based applications.