Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What can be considered a direct consequence of dematerialization of securities?

1. Increased physical stockage of securities

2. Enhanced security for the storage of assets

3. Reduction in fraud related to physical securities

4. Lower transaction fees for issuing new securities

The correct answer is: Reduction in fraud related to physical securities

The dematerialization of securities refers to the process of converting physical securities, such as stock certificates or bond certificates, into electronic form. A direct consequence of this process is the reduction in fraud related to physical securities. This is because physical securities can be subject to theft, forgery, and other fraudulent activities that are much more challenging to commit with electronic securities. When securities are dematerialized, they exist only as digital records, which can be encrypted and securely stored within electronic systems. This significantly diminishes the risks associated with physical handling and transfer of securities, thereby reducing opportunities for fraud. The secure nature of electronic systems, combined with robust regulatory frameworks, helps to enhance the integrity of ownership and transaction processes, making it more difficult for fraudsters to manipulate or counterfeit these assets. In contrast, the other options do not directly align with the primary outcome of dematerialization. Increased physical stockage would be counterintuitive to dematerialization, enhanced security may refer to a broader context than just fraud reduction and lower transaction fees, though potentially a benefit of dematerialization, is not a direct consequence in the same way that reduced fraud is.