Question 1

Which is a core component of customer due diligence (CDD)?

Accepted Answer

B

Explanation: CDD includes verifying the customer’s identity using reliable, independent documentation before or during onboarding.

Question 2

Which of the following are functions of cryptoasset mining? (Select Two.)

Accepted Answer

A, D

Explanation: Mining generates new cryptoassets (A) by rewarding miners for solving complex cryptographic puzzles. It also validates transactions on the blockchain (D) by confirming and recording them in blocks, ensuring the integrity of the ledger. While mining indirectly contributes to network security, the core security mechanisms involve consensus protocols beyond mining alone (B). Optimizing network functionality (C) is usually a development task rather than a mining function.

Question 3

Which activity is most commonly associated with mixing and tumbling as a method of laundering cryptoassets?

Accepted Answer

A

Explanation: Mixing and tumbling services are used to obscure the origin of funds by blending multiple transactions, resulting in unknown or disguised sources of funds. This is a classic money laundering technique. Rapid trades (B), IP address obfuscation (C), and transactions to high-risk jurisdictions (D) are separate or related risks but not direct indicators of mixing/tumbling.

Question 4

A compliance officer is conducting an AML risk assessment of two different operating models: a
centralized cryptoasset exchange and a decentralized cryptoasset exchange. Which key difference
causes the compliance officer to risk-rate the decentralized exchange higher than the centralized
exchange?

Accepted Answer

C

Explanation: Decentralized exchanges lack a central counterparty responsible for AML compliance, making it difficult to enforce KYC/CDD, monitor transactions, or implement controls. This structural characteristic increases inherent AML risk compared to centralized exchanges, which have accountable operators. Transaction cost (A), validator nodes (B), or asset types (D) are less impactful in the compliance risk rating.

Question 5

Which is a primary benefit of blockchain transparency for AML compliance?

Accepted Answer

B

Explanation: Blockchain’s transparent ledger enables investigators to trace transaction histories indefinitely, aiding ML/TF detection.

Question 6

A compliance officer at an exchange who is conducting an annual risk assessment identifies an
increased volume of transactions to and from unhosted wallets. Based on Financial Action Task Force
guidance, which inherent risk rating would be most appropriate for the compliance officer to assign
to such activities?

Accepted Answer

D

Explanation: The Financial Action Task Force (FATF) guidance on Virtual Assets and Virtual Asset Service Providers (VASPs) explicitly highlights that transactions involving unhosted wallets (wallets not held or controlled by a regulated entity) pose a high inherent risk for money laundering and terrorist financing. This is because unhosted wallets are more difficult to monitor and control, lack identifiable customer information, and are often exploited for illicit activities. The DFSA AML Module, aligned with FATF recommendations, mandates that Relevant Persons incorporate this risk into their business-wide risk assessments. The increased volume of transactions to and from unhosted wallets should therefore be assigned a high inherent risk rating to trigger enhanced controls such as enhanced due diligence (EDD) and transaction monitoring. Supporting extracts include: FATF Guidance on Virtual Assets (October 2021) states: "Unhosted wallets or transactions with them represent a high risk of ML/TF due to limited or no access to identifying information." DFSA AML Module (AML/VER25/05-24) Section 4.1 & 6.1 on Risk-Based Approach: mandates firms to assess and rate risks posed by customers and products, explicitly including virtual assets and unhosted wallets as high risk. COB Module also requires heightened controls and disclosures when dealing with transactions involving unhosted wallets【AML/VER25/05-24: Sections 4.1, 6.1, COB/VER45/05-24: Sections 6.13, 15.6】. Thus, option D (High) is the correct risk rating.

Question 7

Which is the most important consideration when assessing compromise risks when creating a decentralized finance protocol or smart contract?

Accepted Answer

D

Explanation: Code uniqueness is critical because reuse or replication of vulnerable code exposes protocols to known exploits. Unique, well-audited, and secure code minimizes compromise risk in decentralized finance (DeFi) and smart contracts. Security standards (A), authentication (B), and regulation (C) are important but secondary to the fundamental security of the code itself.

Question 8

In sanctions screening, a “fuzzy match” occurs when:

Accepted Answer

B

Explanation: Fuzzy matches require further review to confirm whether the match is a true hit or a false positive, ensuring compliance accuracy.

Question 9

What is the purpose of a security audit in reason to smart contracts?

Accepted Answer

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.

Question 10

Which FATF Recommendation specifically addresses virtual assets and VASPs?

Accepted Answer

B

Explanation: FATF Recommendation 15 requires countries to regulate VASPs for AML/CFT purposes, applying the same preventive measures as financial institutions.

Question 11

When enhances international cooperation with regard to law enforcement investigations of virtual asset (VA) crimes?

Accepted Answer

D

Explanation: Enhanced international cooperation in VA crime investigations is most effective when jurisdictions designate and empower Financial Intelligence Units (FIUs) that can share intelligence, coordinate cross-border investigations, and liaise with counterparts internationally. While FATF membership (A) facilitates cooperation, the operational hub for investigations is the FIU. Establishing new agencies (B) or smart contracts for sharing (C) are not established or effective methods. DFSA guidance and FATF recommendations stress the central role of FIUs in enhancing cooperation and intelligence sharing for AML/CFT, including virtual assets.

Question 12

Which key type of information allows financial intelligence units to combat the risk of anonymity in virtual currencies?

Accepted Answer

D

Explanation: The most critical information enabling FIUs to address anonymity risks is data linking a virtual address to the real-world identity of its owner. Without this association, blockchain addresses remain pseudonymous, hindering effective AML efforts. While transaction timing (A), identity of receiver (B), and transaction-to-address mapping (C) are useful, ownership linkage (D) is essential to break anonymity. FATF and DFSA guidance prioritize obtaining ownership information through KYC and intelligence sharing.

Question 13

Which blockchain characteristic makes forensic tracing of transactions possible?

Accepted Answer

C

Explanation: Blockchain’s immutability ensures that all transactions remain permanently recorded and tamper- proof, enabling blockchain analytics to trace illicit funds. This property is leveraged in crypto forensic investigations and AML monitoring.

Question 14

Which risk category covers threats from ransomware actors demanding payment in cryptoassets?

Accepted Answer

C

Explanation: Ransomware schemes are categorized as cyber-enabled financial crimes. AML/CFT frameworks require that such risks be assessed and mitigated through blockchain analytics, sanctions screening, and transaction monitoring for known ransomware wallet addresses.

Question 15

How does law enforcement use Suspicious Activity Reports (SARs)? (Select Two.)

Accepted Answer

C, D

Explanation: Suspicious Activity Reports (SARs) are a critical tool for law enforcement agencies. They are primarily used to develop intelligence on potential new criminal targets and to confirm or expand information about existing investigations. SARs do not serve as direct evidence of money laundering in court but provide leads and context that enable law enforcement to build cases. The DFSA’s thematic reviews and AML guidance clarify that SARs assist in identifying emerging crime patterns and help intelligence units track suspicious transactions over time. They also allow law enforcement to corroborate data from other sources. SARs help: Develop intelligence on new targets (C) by revealing previously unknown suspicious behavior. Confirm or develop information on existing targets (D) by adding transactional data and context. Identifying regulatory failings (A) is primarily a supervisory function, and SARs themselves are not evidence for prosecution (B) but intelligence inputs. Therefore, options C and D are correct.

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