A loan or finance company subject to 31 CFR 1029.210 proposes independent AML testing every 18 months by internal audit staff, not its designated AML compliance officer. Can internal staff perform the testing, and how is the appropriate frequency determined?
Correct Answer
A) Acceptable where the testing is independent and matched to the risk
A. Internal testing is permitted if independent, with scope and frequency appropriate to risk. The regulation allows eligible internal personnel or a third party to perform the testing. An 18-month schedule is not automatically acceptable merely because it is written into policy; risk must support the frequency and scope. Scope and exceptions: The designated compliance officer is expressly excluded as the tester under this rule. This question does not certify this company’s proposed schedule as adequate. Source: 31 CFR 1029.210(b)(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
A. Internal testing is permitted if independent, with scope and frequency appropriate to risk. The regulation allows eligible internal personnel or a third party to perform the testing. An 18-month schedule is not automatically acceptable merely because it is written into policy; risk must support the frequency and scope. Scope and exceptions: The designated compliance officer is expressly excluded as the tester under this rule. This question does not certify this company’s proposed schedule as adequate.
Why the Other Options Are Wrong
Option B: Acceptable because any review within 24 months meets the standard
There is no universal 24-month safe harbor in this provision.
Option C: Unacceptable: independent testing is required every 12 months exactly
The cited provision does not prescribe exactly 12 months for every company.
Option D: Unacceptable: independent testing must be done by an outside firm
An outside firm is allowed, not universally required.
Exam Tip
Internal does not necessarily mean non-independent; a fixed calendar does not prove adequacy.
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