A.4 Financial Services Regulations and Requirements

Question 1

Which of the following regulatory bodies oversees the securities industry in the United States?

A. Federal Deposit Insurance Corporation (FDIC)
B. Securities and Exchange Commission (SEC)
C. Commodity Futures Trading Commission (CFTC)
D. National Credit Union Administration (NCUA)

Answer 1

B. Securities and Exchange Commission (SEC)

A.4 Financial services regulations and requirements

Question 2

The Gramm-Leach-Bliley Act requires financial institutions to:

A. provide consumers with privacy notices
B. disclose fees for services
C. report suspicious activities to law enforcement
D. maintain adequate capital levels

Answer 2

A. Provide consumers with privacy notices

The Gramm-Leach-Bliley Act requires financial institutions to provide consumers with privacy notices describing how they collect, use, and share personal information.

A.4 Financial services regulations and requirements

Question 3

Which of the following is NOT a requirement of the Bank Secrecy Act?

A. Reporting cash transactions over $10,000
B. Monitoring customer accounts for suspicious activity
C. Conducting background checks on employees
D. Providing consumer privacy notices

Answer 3

D. Providing consumer privacy notices

The Bank Secrecy Act requires financial institutions to report cash transactions over $10,000, monitor customer accounts for suspicious activity, and conduct background checks on employees.

A.4 Financial services regulations and requirements

Question 4

Under the USA PATRIOT Act, financial institutions are required to:

A. Report suspicious activity to law enforcement
B. Maintain adequate capital levels
C. Provide consumers with privacy notices
D. Disclose fees for services

Answer 4

A. Report suspicious activity to law enforcement

The USA PATRIOT Act requires financial institutions to report suspicious activity to law enforcement to help prevent money laundering and terrorist financing.

A.4 Financial services regulations and requirements

Question 5

Which of the following is NOT a requirement of the Fair Credit Reporting Act?

A. Providing consumers with free credit reports
B. Disclosing information about credit decisions to consumers
C. Reporting accurate information to credit bureaus
D. Providing consumers with privacy notices

Answer 5

D. Providing consumers with privacy notices

The Fair Credit Reporting Act requires financial institutions to provide consumers with free credit reports, disclose information about credit decisions to consumers, and report accurate information to credit bureaus.

A.4 Financial services regulations and requirements

Question 6

Which of the following is NOT a requirement of the Securities Act of 1933?

A. Registration of securities offerings
B. Disclosure of material information to investors
C. Prohibition of insider trading
D. Regulation of investment advisers

Answer 6

D. Regulation of investment advisers

The Securities Act of 1933 requires the registration of securities offerings, disclosure of material information to investors, and prohibition of insider trading.

A.4 Financial services regulations and requirements

Question 7

Which of the following is NOT a requirement of the Investment Advisers Act of 1940?

A. Registration of investment advisers
B. Disclosure of conflicts of interest
C. Prohibition of insider trading
D. Filing of annual reports

Answer 7

C. Prohibition of insider trading

The Investment Advisers Act of 1940 requires the registration of investment advisers, disclosure of conflicts of interest, and filing of annual reports.

A.4 Financial services regulations and requirements

Question 8

The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in response to:

A. The 2008 financial crisis
B. The savings and loan crisis of the 1980s
C. The dot-com bubble of the late 1990s
D. The Enron scandal

Answer 8

A. The 2008 financial crisis

The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in response to the 2008 financial crisis.

A.4 Financial services regulations and requirements

Question 9

Which of the following is NOT a requirement of the Bank Holding Company Act?

A. Regulation of bank holding company acquisitions
B. Limitations on nonbanking activities of bank holding companies
C. Regulation of commercial bank lending practices
D. Regulation of capital adequacy of bank holding companies

Answer 9

C. Regulation of commercial bank lending practices

The Bank Holding Company Act regulates the activities of bank holding companies, including their acquisitions and nonbanking activities, as well as the capital adequacy of such companies. However, the Act does not regulate commercial bank lending practices.

A.4 Financial services regulations and requirements

Question 10

An investment adviser receives a $10,000 bonus for recommending a particular investment to a client. Which of the following regulations has been violated?

A. Bank Secrecy Act
B. Investment Advisers Act of 1940
C. Securities Act of 1933
D. Fair Credit Reporting Act

Answer 10

B. Investment Advisers Act of 1940

The investment adviser has violated the Investment Advisers Act of 1940 by failing to disclose the conflict of interest created by the bonus

A.4 Financial services regulations and requirements

Question 11

A bank has provided a loan to a customer for a real estate project. The customer is behind on the loan payments and the bank is considering foreclosing on the property. Which of the following regulations requires the bank to provide the customer with notice and an opportunity to cure the default before foreclosing?

A. Bank Secrecy Act
B. Fair Credit Reporting Act
C. Fair Debt Collection Practices Act
D. Truth in Lending Act

Answer 11

C. Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act requires the bank to provide the customer with notice and an opportunity to cure the default before foreclosing.

A.4 Financial services regulations and requirements

Question 12

A brokerage firm has received a large deposit from a customer in cash. Which of the following regulations requires the brokerage firm to file a report with the Financial Crimes Enforcement Network (FinCEN)?

A. Gramm-Leach-Bliley Act
B. Securities Act of 1933
C. Bank Secrecy Act
D. Investment Advisers Act of 1940

Answer 12

C. Bank Secrecy Act

The Bank Secrecy Act requires financial institutions, including brokerage firms, to report cash transactions over $10,000 to FinCEN.

A.4 Financial services regulations and requirements

Question 13

A credit card issuer has increased the interest rate on a customer’s account without providing notice or a reason for the increase. Which of the following regulations has been violated?

A. Fair Credit Reporting Act
B. Truth in Lending Act
C. Fair Debt Collection Practices Act
D. Investment Advisers Act of 1940

Answer 13

B. Truth in Lending Act

The Truth in Lending Act requires credit card issuers to provide notice and a reason for any interest rate increases.

A.4 Financial services regulations and requirements

Question 14

A customer has filed a complaint with a financial institution regarding an error on their account. The financial institution has investigated the complaint and determined that no error occurred. Which of the following regulations requires the financial institution to provide the customer with a written explanation of the investigation results?

A. Gramm-Leach-Bliley Act
B. Truth in Savings Act
C. Fair Credit Reporting Act
D. Electronic Funds Transfer Act

Answer 14

D. Electronic Funds Transfer Act

The Electronic Funds Transfer Act requires financial institutions to provide customers with a written explanation of the investigation results when a complaint is filed regarding an error on an electronic funds transfer.

A.4 Financial services regulations and requirements

Question 15

Janet, a Certified Financial Planner CFP®, is meeting with a new client, Tom, who has expressed an interest in purchasing a variety of financial products that Janet offers through her affiliated broker-dealer. Janet knows she must comply with specific regulatory requirements before she can proceed with recommending any financial products.

Question:
Which of the following actions must Janet take first according to financial services regulations?

A. Assess the client’s risk tolerance and investment objectives.
B. Provide the client with detailed disclosures regarding her compensation and potential conflicts of interest.
C. Immediately recommend financial products that align with the client’s stated financial goals.
D. Execute trades on behalf of the client to secure the financial products discussed in the meeting.

Answer 15

B. Provide the client with detailed disclosures regarding her compensation and potential conflicts of interest.

According to financial services regulations, particularly those related to fiduciary duty and ethics, financial planners must first disclose any potential conflicts of interest and how they are compensated before making recommendations or executing trades. This ensures transparency and helps clients make informed decisions.

A.4 Financial services regulations and requirements

Question 16

Marcus, a Certified Financial Planner CFP®, specializes in retirement planning and is reviewing the portfolio of a long-term client, Alicia, who is nearing retirement age. Marcus is considering adjustments to Alicia’s portfolio to better align with her retirement goals and risk tolerance, which have evolved as she approaches retirement.

Question:
What regulatory requirement must Marcus adhere to when making these adjustments?

A. Ensure that all investments are suitable based on Alicia’s new risk tolerance and retirement timeline.
B. Limit investment changes to those with guaranteed returns.
C. Avoid discussing any potential investment risks with Alicia to prevent her from making rash decisions.
D. Report the planned adjustments to the state securities regulator before implementing them.

Answer 16

A. Ensure that all investments are suitable based on Alicia’s new risk tolerance and retirement timeline.

Regulations require that financial planners act in their clients’ best interests, which includes ensuring that all investments recommended are suitable for the client’s current financial situation, goals, and risk tolerance. As Alicia’s situation has evolved, Marcus must reassess suitability to align with her nearing retirement and possibly changed risk profile, ensuring compliance with regulations such as those from FINRA regarding suitability standards.

A.4 Financial services regulations and requirements

Question 17

Linda, a Certified Financial Planner, has recently changed firms and now works for a larger financial services company. As part of her transition, she wants to bring her existing clients with her to the new firm.

Question:
What regulatory action is most important for Linda to undertake before she can start serving her existing clients at the new firm?

A. Create new investment strategies for all her clients.
B. Ensure that all client records are transferred in compliance with privacy laws.
C. Have a celebratory event with her clients to announce the change.
D. Start trading immediately to show quick wins for her clients at the new firm.

Answer 17

B. Ensure that all client records are transferred in compliance with privacy laws.

According to financial services regulations concerning client confidentiality and data protection, Linda must ensure that all client records are securely and legally transferred to her new firm. This complies with laws such as the Gramm-Leach-Bliley Act (GLBA), which mandates the protection of private client information.

A.4 Financial services regulations and requirements

Question 18

Kevin, a Certified Financial Planner CFP®, is advising a couple on estate planning. He recommends setting up a trust to help manage their estate efficiently. However, Kevin is not an attorney.

Question:
What must Kevin ensure to comply with regulatory requirements when discussing the trust?

A. Only provide advice on financial aspects and refer legal advice to a qualified attorney.
B. Prepare the legal documents himself to ensure they are completed promptly.
C. Discourage the couple from seeking external legal advice to maintain control over their financial planning.
D. Advise the couple based on legal advice he has seen in similar situations.

Answer 18

A. Only provide advice on financial aspects and refer legal advice to a qualified attorney.

Kevin must avoid practicing law without a license, which includes drafting legal documents or providing specific legal advice. According to regulations, financial planners should focus on the financial aspects of planning and refer clients to licensed professionals for legal advice, ensuring compliance with both ethical and regulatory standards.

A.4 Financial services regulations and requirements

Question 19

Emily, a Certified Financial Planner, is reviewing investment options for a client who has expressed interest in a high-yield investment program advertised online. Emily is skeptical about the legitimacy of the program.

Question:
What is the most appropriate action for Emily to take based on regulatory guidelines?

A. Encourage the client to invest a small amount to test the legitimacy of the program.
B. Report her suspicions to the appropriate regulatory body such as FINRA or the SEC.
C. Ignore her suspicions and proceed with the investment to satisfy the client’s interest.
D. Conduct an independent online review and base her advice on the findings.

Answer 19

B. Report her suspicions to the appropriate regulatory body such as FINRA or the SEC.

When a financial planner suspects a potentially fraudulent investment, it is her duty to protect her client and the integrity of the financial services profession by reporting these suspicions to regulatory bodies like FINRA or the SEC. This action is in line with ensuring investor protection and compliance with regulatory standards against fraud.

A.4 Financial services regulations and requirements

Question 20

Paul, a Certified Financial Planner, uses social media to share financial tips and promote his services. He recently posted about the success rates of his investment strategies.

Question:
According to regulatory standards, what must Paul ensure when posting such information on social media?

A. Guarantee specific returns on investments to attract more clients.
B. Post disclaimers that past performance does not guarantee future results.
C. Use aggressive marketing language to increase his online visibility.
D. Offer free initial consultations to anyone who shares his posts.

Answer 20

B. Post disclaimers that past performance does not guarantee future results.

Regulatory standards, including those enforced by the SEC and FINRA, require that financial professionals provide balanced information and disclose that past performance does not necessarily predict future results. This helps maintain transparency and manage client expectations, especially on platforms like social media where information can be widely disseminated.

A.4 Financial services regulations and requirements