A nonbank residential mortgage lender subject to 31 CFR 1029.210 has written AML policies, a designated compliance officer and annual training. Its annual program testing is performed solely by that designated compliance officer. Which required element is not satisfied by this testing arrangement?
Correct Answer
B) The 4th element fails: testing by the program owner is not independent
B. The designated compliance officer cannot perform the required independent testing. The rule expressly excludes that designated person as the tester. A third party is permitted, but a qualifying other officer or employee may also test. Scope and exceptions: Testing scope and frequency must reflect risk; annual testing is not automatically sufficient. The sparse facts also do not establish that policies or training are otherwise adequate. Source: Section 1029.210(a), (b)(2)–(4) — https://www.ecfr.gov/current/title-31/subtitle-B/chapter-X/part-1029/subpart-B/section-1029.210
Why This Is the Correct Answer
B. The designated compliance officer cannot perform the required independent testing. The rule expressly excludes that designated person as the tester. A third party is permitted, but a qualifying other officer or employee may also test. Scope and exceptions: Testing scope and frequency must reflect risk; annual testing is not automatically sufficient. The sparse facts also do not establish that policies or training are otherwise adequate.
Why the Other Options Are Wrong
Option A: All 4 elements are met, since the officer knows the program best
Familiarity does not override the express tester restriction.
Option C: The 3rd element fails, as training must be delivered twice each year
The rule requires ongoing appropriate training, not a universal twice-yearly schedule.
Option D: The 1st element fails, because written policies must be board approved
The cited rule requires senior-management approval, not a universal separate board-approval condition.
Exam Tip
Check tester independence and risk-based scope, not merely whether a review occurred.
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