Chapter 1 Quiz

What Is RegTech? History, Definitions, and the Compliance Crisis

Self-assessment: 25 questions. Mix of multiple choice, true/false, and short answer.

Section A: Multiple Choice (15 questions)

1. Which of the following best defines RegTech according to the FCA's working definition?

a) Technology that provides new financial products and services to consumers b) Technology that facilitates the delivery of regulatory requirements more efficiently and effectively c) Technology used by regulators to supervise financial institutions d) Technology that automates legal document analysis for law firms

2. The compliance burden in financial services is primarily the result of:

a) Increasing complexity of financial products alone b) The convergence of post-2008 regulatory expansion, speed requirements, and technical complexity c) The rise of algorithmic trading and digital banking d) GDPR and data privacy requirements specifically

3. Which event is widely cited as the single most important driver of the post-2008 regulatory wave?

a) The dot-com crash of 2000 b) The Enron scandal of 2001 c) The global financial crisis of 2007–2009 d) The European sovereign debt crisis of 2011

4. SupTech refers to:

a) Technology used by financial institutions to support compliance b) Technology used by regulators to supervise the institutions they oversee c) Technology platforms for supervisory self-assessment d) A subset of LegalTech focused on securities law

5. Which of the following is NOT one of the five families of RegTech as defined in this chapter?

a) Identity and Onboarding b) Financial Crime Compliance c) Consumer Product Innovation d) Regulatory Intelligence

6. The term "false positive" in the context of transaction monitoring refers to:

a) A transaction that is correctly identified as suspicious b) A legitimate transaction that is incorrectly flagged as suspicious c) A fraud alert that is generated too slowly d) A duplicate alert for the same suspicious activity

7. XBRL stands for:

a) Exchange-Based Regulatory Ledger b) eXtensible Business Reporting Language c) External Baseline Risk Limits d) Extended Basel Risk Layer

8. The Bank Secrecy Act (US), enacted in 1970, was significant for RegTech history because:

a) It introduced the first machine learning requirements for compliance b) It established the first AML reporting obligations, driving early compliance automation c) It created the FATF and global AML standards d) It was the first legislation to mandate the use of technology in compliance

9. Which of the following is the best description of the structural mismatch driving RegTech adoption?

a) The gap between what technology vendors promise and what they deliver b) The mismatch between compliance staff salaries and market rates c) The gap between the volume, speed, and complexity of regulatory obligations and the capacity of manual processes to meet them d) The inconsistency between domestic and international regulatory standards

10. Rafael Torres' role at Meridian Capital is best described as:

a) Chief Compliance Officer b) VP of Compliance Technology, sitting between compliance and technology functions c) Head of AML Operations d) Chief Risk Officer

11. The FATF is:

a) A US financial regulator equivalent to the FCA b) An intergovernmental body setting global AML/CFT standards c) A European banking supervisory authority d) A trade association for RegTech vendors

12. Which of the following was NOT a direct regulatory response to the 2008 financial crisis?

a) Dodd-Frank Act b) Basel III c) The USA PATRIOT Act d) MiFID II

13. Maya Osei's KYC backlog at Verdant Bank consists of approximately:

a) 1,400 customers b) 14,000 customers c) 140,000 customers d) 1,400,000 customers

14. The distinction between RegTech and LegalTech is:

a) Absolute — they use entirely different technologies b) One of focus — RegTech targets financial compliance, LegalTech targets legal practice generally, with real overlaps c) Jurisdictional — RegTech is a UK/EU term, LegalTech is a US term d) Temporal — LegalTech is older than RegTech

15. Which of the following best characterizes the position of RegTech within the FinTech ecosystem?

a) RegTech is synonymous with FinTech b) RegTech is a competing alternative to FinTech c) RegTech is a subset of FinTech with a specific focus on regulatory compliance d) RegTech is a subset of LegalTech

Section B: True / False (5 questions)

16. Using RegTech tools automatically satisfies a firm's regulatory compliance obligations. (True / False)

17. The compliance cost burden for major financial institutions has been declining since 2015 due to automation. (True / False)

18. Graph analytics in the financial crime family of RegTech maps relationships between accounts and entities to identify patterns invisible at the transaction level. (True / False)

19. Priya Nair works in-house at a financial institution managing its own compliance technology. (True / False)

20. The post-2008 regulatory wave is primarily notable for the technical complexity of requirements rather than their volume. (True / False)

Section C: Short Answer (5 questions)

21. In your own words, explain why the 95% false positive rate in AML transaction monitoring is a significant problem for financial institutions. What resources does it consume and what risks does it create?

22. Describe the key difference between the "originate-to-distribute" model failure that contributed to the 2008 crisis and the kind of fraud or money laundering that AML systems are designed to detect. Why did this distinction matter for the regulatory response?

23. A colleague argues that "since AI now handles most of our AML monitoring, we need fewer compliance analysts." What are the strongest arguments against this position?

24. Cornerstone Financial Group operates across four subsidiaries in multiple jurisdictions. Identify at least three distinct regulatory relationships (regulator + jurisdiction + basis for regulation) that Cornerstone would need to manage.

25. Maya is considering two approaches to the KYC backlog: (a) hire six additional compliance analysts to manually review outstanding cases, or (b) implement an automated eIDV solution that can process cases digitally. What information would you want before recommending one approach over the other?

Answer Key

Multiple Choice: 1-b, 2-b, 3-c, 4-b, 5-c, 6-b, 7-b, 8-b, 9-c, 10-b, 11-b, 12-c, 13-b, 14-b, 15-c

True/False: 16-False, 17-False, 18-True, 19-False (she works at a Big 4 advisory firm), 20-False (both volume and complexity are notable)

Short Answer: See answers-to-selected.md in the appendices for discussion guides to questions 21–25.