Detecting Potential Money Laundering Activity | CAMS Exam Question Answer

B

(2)

The potential client in this scenario seems to have a possible conflict of interest, as they may have relatives working for a company in which they want to invest. This raises concerns that the potential client may be attempting to engage in insider trading, which is the illegal use of non-public information to make trades in financial markets.

Insider trading violates securities laws and undermines the integrity of financial markets. Individuals who engage in insider trading use privileged information to gain an unfair advantage over other market participants, and as such, it is strictly prohibited by regulatory bodies.

The correct answer to the question is option C, "Usage of insider information." This is because the client appears to have access to non-public information through their relatives, which they may use to make informed investment decisions. The fact that the potential client does not seem to be concerned with the fees or prices associated with the account or securities further suggests that they may be more interested in using their privileged information to make a profit than in achieving the best investment outcome for themselves.

As a broker-dealer, it is important to be vigilant for signs of insider trading and other types of financial crime, and to report any suspicious activity to the appropriate authorities. This may include conducting enhanced due diligence on potential clients, monitoring transactions for unusual patterns or behaviors, and educating clients about their obligations under securities laws.