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SIE > Ch. 15 Compliance > Flashcards

Ch. 15 Compliance Flashcards

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1
Q

What items are acceptable as proof of identity under the Customer Identification Program (CIP)?

A

Passport or driver’s license (both have a picture)

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2
Q

If a client refuses to provide certain information, may the account still be opened?

A

Yes, although name and address are required.

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3
Q

Describe the term structuring as it relates to money laundering.

A

When a customer deposits or transfers assets below the reporting thresholds in an attempt to avoid detection

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4
Q

What protects a brokerage client from theft or embezzlement?

A

The posting of a fidelity bond by the BD

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5
Q

True or False: Using a P.O. Box as an address is not acceptable to open an account.

A

True. An actual address is required; however, mail may be sent to a P.O. Box.

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6
Q

Under the TCPA, how is an established customer defined?

A

One that has made an unsolicited inquiry or effected a transaction with the firm

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7
Q

Under Regulation SP, a _________ is someone who has an ongoing relationship with a firm.

A

Customer

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8
Q

True or False: There are no suitability requirements for institutional investors.

A

False. Although they differ from retail requirements, suitability requirements do apply to institutional investors.

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9
Q

What would a customer find on her account statement?

A

The current value of all securities, number of shares, and all dividends and interest received

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10
Q

Define correspondence.

A

Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.

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11
Q

In the process of opening a new account, when must an RR obtain customer information?

A

Prior to entering the first order

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12
Q

How often must anti-money laundering (AML) programs be tested?

A

Annually, by an independent source

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13
Q

What are the different methods a firm may use to provide disclosure regarding its business continuity plan?

A

A disclosure statement is provided at account opening, posted on its Website, or mailed to clients upon request.

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14
Q

Based on written instructions, a B/D may hold customer correspondence for _____ months.

A

3 months

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15
Q

True or False: Trade confirmations may be sent electronically.

A

True

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16
Q

Identify the acronym: AML

A

Anti-money laundering

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17
Q

In what different forms may retail communications be delivered?

A

Written or electronic

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18
Q

Give examples of information included on a customer statement.

A

Name of securities (issuer), number of shares owned, price or market value of securities, and dividends or interest paid

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19
Q

List three reasons that would warrant updating a customer account form

A

Changes to the customer’s name, address, or occupation

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20
Q

Under Regulation SP, a _________ is someone who gives nonpublic, personal information to a BD that may result in trades.

A

Consumer

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21
Q

True or False: Reviewing account statements allows clients to identify problems or deficiencies in their accounts.

A

True

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22
Q

True or False: FINRA’s suitability rules for institutions are less stringent when compared to the rules for retail investors.

A

True

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23
Q

True or False: An RR may send a confirmation for a trade he believes will occur soon.

A

False. Trade confirmations may only reflect actual transactions.

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24
Q

Regulation S-P requires clients be provided with a ______________ detailing how BDs handle personal client information.

A

Privacy Notice

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25
Q

True or False: Only physical account statements may be provided to clients.

A

False. Account statements may also be made available electronically.

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26
Q

For their customers with free credit balances, BDs must provide notification at least ___________.

A

Quarterly

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27
Q

When must the privacy notice be provided to customers?

A

When the relationship is first established, followed by an updated version annually

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28
Q

When is a Currency Transaction Report (CTR) or FinCEN Form 104 filed?

A

Within 15 days following the transaction

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29
Q

___________________________ is material distributed or made available only to institutional investors.

A

Institutional communication is material distributed or made available only to institutional investors.

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30
Q

May a customer request to have trade confirmations e-mailed to her?

A

Yes. Sending trade confirmations electronically is acceptable.

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31
Q

True or False: Clients need not sign the account form for a cash account.

A

True, but signature would be required for an option or a margin account.

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32
Q

When must the Reg S-P privacy notice be provided to a customer?

A

At the time of the account opening and annually thereafter

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33
Q

True or False: A BD may create account statements on trades it believes will occur.

A

False. Statements may only reflect actual transactions.

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34
Q

True or False: FinCEN is a government agency that provides financial intelligence to law enforcement officials.

A

True. FinCEN is part of the Department of Treasury and protects the U.S. financial market from corruption.

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35
Q

True or False: On request, institutional communication may be provided to a retail client.

A

False. Institutional communication may never be provided to a retail investor.

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36
Q

True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.

A

False. The list shows the names of suspected terrorists and criminals.

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37
Q

When must customer confirmations be sent?

A

By the completion of the transaction (usually the settlement date)

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38
Q

How often must a firm provide customers with a privacy statement?

A

At the time of account opening and annually thereafter

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39
Q

According to FINRA rules, list some of the persons that are considered institutional investors.

A

Banks, insurance companies, investment companies, investment advisers, FINRA members and their RRs

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40
Q

What should an agent consider when determining suitability for an institutional client?

A

Whether the client is acting independently and has the capability to understand the risks

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41
Q

BDs are required to maintain certain records for either ______ years, ____ years, or the _________ of the firm.

A

3 years, 6 years or a lifetime

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42
Q

True or False: Broker-dealers that act as trustees for corporations can use shareholder lists to cold-call or prospect.

A

False. This is a violation of FTC rules.

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43
Q

True or False: Whether a BD acted as an agent or principal on a trade is shown on the account statement.

A

False. Firm capacity is identified on the trade confirmation.

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44
Q

Identify the acronym: CIP

A

Customer Identification Program

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45
Q

What may a client review to identify any discrepancies in securities positions or cash balances in her account?

A

Account Statement

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46
Q

True or False: A business continuity plan must address how a firm will communicate with its clients and employees.

A

True

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47
Q

What triggers a BD’s filing of a Currency Transaction Report (CTR)?

A

Any cash transaction executed by a customer during one day that exceeds $10,000

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48
Q

Identify the acronym: SAR

A

Suspicious Activity Report

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49
Q

Define the term structuring as it relates to money laundering.

A

Breaking up large transactions into smaller amounts in an attempt to evade AML reporting requirements

50
Q

Customers must be provided with a statement of account not less than once every calendar ________.

A

Quarter

51
Q

What information is included on a customer account statement?

A

Securities positions, cash balances, and any purchase, sale, transfer, or distribution activity since the last statement

52
Q

A posting on a BD’s Facebook or Twitter page is considered what form of communication?

A

Retail Communication

53
Q

Account statements must be sent to customers at least ____________.

A

Quarterly

54
Q

For active accounts, account statements must be sent ____________.

A

Monthly

55
Q

How often must member firms send clients an account statement?

A

Quarterly

56
Q

What is the purpose of a BD’s business continuity plan?

A

To prepare for significant business disruptions, including natural disasters

57
Q

True or False: A BD’s business continuity plan includes the home addresses and names of key employees.

A

False

58
Q

True or False: A customer confirmation is only required to disclose whether the firm was acting in an agency capacity.

A

False. Confirmations must disclose whether a firm acts in an agency or principal capacity.

59
Q

If a client refuses to disclose her age when opening an account, what should the BD explain to her?

A

The firm should explain that without proof of age, an account may not be opened.

60
Q

What list must be checked to identify suspected terrorists and criminals?

A

OFAC List (Treasury Department’s Office of Foreign Assets Control)

61
Q

BDs are required to monitor the status of all fully paid and excess margin securities on a _______ basis.

A

Daily

62
Q

All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.

A

must be kept for 3 years and easily accessible for 2 years

63
Q

According to FINRA, what are the three categories of communications with the public?

A

Correspondence, Institutional Communication, and Retail Communication

64
Q

May client information be given to a third party?

A

Only if the third party has legal authority (e.g., IRS) or the client provides written consent

65
Q

Describe the term layering as it relates to money laundering.

A

A situation where a customer deposits money in various accounts with different owners in an attempt to evade detection

66
Q

True or False: Customer securities are under the control of a BD if they are held at a custodian bank or clearing corpration.

A

True

67
Q

What must be checked before a BD makes telephone solicitations?

A

Firm’s Do Not Call List

68
Q

Under the communication rules, group e-mail sent to more than 25 retail investors is considered ____________________.

A

Retail Communication

69
Q

What triggers a BD’s filing of a Suspicious Activity Report (SAR)?

A

Any suspicious transactions of $5,000 or more

70
Q

True or False: Correspondence is any written or electronic message sent to more than 25 existing or potential clients.

A

False. Correspondence is communication sent to 25 or fewer retail investors over a 30-calendar-day period.

71
Q

What must be addressed in a BD’s business continuity plan?

A

The process for communicating with regulators and mission-critical systems (computers) required to continue business

72
Q

True or False: The capacity in which a firm acts appears on both the confirmation and the order ticket.

A

False. Firm capacity is disclosed on the confirmation, not the order ticket.

73
Q

When dealing with institutional client suitability, what are two important considerations?

A

The client’s ability to evaluate independently the risk and the extent to which they are exercising that ability.

74
Q

What form must be filed by BD employees who believe that a check has been tampered with or forged?

A

Suspicious Activity Report

75
Q

What is the OFAC List?

A

The Office of Foreign Assets Control of the U.S. Treasury List; it identifies suspected terrorists and criminals

76
Q

In a firm’s business continuity plan, how many emergency contacts must be provided?

A

Two, at least one of whom must be a member of senior management and a registered principal of the member firm

77
Q

When is a CTR required to be filed?

A

Within 15 days of the activity

78
Q

Under the Customer Identification Program of the USA PATRIOT Act, what information MUST be obtained about a client?

A

Date of birth, name, address, and an ID number

79
Q

All documents are to be maintained readily accessible for the first ___ years.

A

2 years

80
Q

What are some examples of retail communication?

A

Newspapers, magazines, radio, TV, billboards, generally accessible Web sites

81
Q

RRs who make recommendations that require continued purchases must consider their clients’ ______________.

A

Ability to pay

82
Q

Based on written request, what is the maximum period that a B/D may hold customer correspondence?

A

Three months. To exceed three months, the customer must provide the B/D with a valid reason for the request.

83
Q

If a firm acts in an agency capacity, the ___________ must be disclosed on a confirmation.

A

Commission

84
Q

How often must an updated copy of the privacy notice be provided to customers?

A

At least once during each 12-month cycle

85
Q

The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.

A

The Telephone Consumer Protection Act (TCPA), allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.

86
Q

Excess margin securities are those whose value exceeds _____% of the customer’s debit balance.

A

140%

87
Q

Identify the acronym: OFAC

A

Office of Foreign Assets Control List (U.S. Treasury Department’s list of suspected terrorists and criminals)

88
Q

Define institutional communication.

A

Written or electronic communication that is distributed or made available only to institutional investors

89
Q

When are firms required to provide a non-customer (consumer) with a copy of their privacy notice?

A

Prior to the sharing of non-public personal information

90
Q

True or False: A B/D that holds customer mail for more than three months must obtain a valid reason from the customer.

A

True. The broker-dealer must also obtain the customer’s request in writing.

91
Q

Under the Customer Identification Program, may accounts be opened for clients refusing to provide required information?

A

NO!

92
Q

When is a privacy notice presented to a customer?

A

At account opening and annually

93
Q

Where may a client find details about her purchases, sales, credits, debits, dividend payments, receipts or deliveries?

A

Account statement

94
Q

When is confirmation of a transaction sent to a client?

A

No later than the completion of a transaction

95
Q

According to Regulation SP, what information must be included in a BD’s privacy notice?

A

Type of personal information collected, third parties with whom the information is shared, and an opt-out provision

96
Q

John has opened an account with a BD. When is the firm required to provide John with a privacy notice?

A

Since John is a customer, it must be provided at the time the account is opened and annually thereafter

97
Q

What must a firm obtain prior to sending a client’s account statements to a third party?

A

Specific written instructions from the account owner

98
Q

Identify the acronym: FinCEN

A

Financial Crimes Enforcement Network

99
Q

Customer account information must be updated every ____ months.

A

36 months (3 years)

100
Q

What report is filed when financial transactions have no apparent business purpose?

A

Suspicious Activity Report

101
Q

What should an RR recommend to a client who is looking for an exciting investment?

A

Nothing, since exciting is not a valid objective

102
Q

List some items that are found on a customer confirmation.

A

Trade date, time of trade (or available on request), buy/sell, description, price, number of shares/units, CUSIP number

103
Q

Along with Web pages, what are some other examples of retail communication?

A

Notices, circulars, research reports, form letters, telemarketing scripts, and widely distributed instant messages

104
Q

True or False: A client may not be informed of the filing of a Suspicious Activity Report.

A

True

105
Q

If a registered representative is found guilty of facilitating money laundering, what is the maximum penalty?

A

20 years in prison and a fine of up to $500,000 or twice the amount of the funds involved—whichever is greater.

106
Q

Identify the acronym: CTR

A

Currency Transaction Report

107
Q

True or False: Under Regulation SP, requiring a client to write a letter to opt-out of information sharing is allowed.

A

False

108
Q

Under FINRA’s communication rules, form letters sent to 12 retail investors is considered ______________.

A

Correspondence

109
Q

True or False: When opening a customer account, a P.O. Box may be used.

A

False unless miltary

110
Q

True or False: An RR may delay sending an account statement if the customer is losing money.

A

False

111
Q

True or False: Commissions paid on transactions will be disclosed on a client’s account statement.

A

False. Commission disclosure is made on the trade confirmation.

112
Q

Do clients need to sign a letter of authorization (LOA) to begin receiving confirmations and statements electronically?

A

No

113
Q

When does a firm file a Suspicious Activity Report (SAR)?

A

When it knows or believes the client’s funds derived from illegal activities, or the trades have no legitimate purpose

114
Q

True or False: All customer account-related information must be delivered physically.

A

False. On request, BDs are permitted to deliver both confirmations and statements electronically.

115
Q

_______________ is any communication sent to 25 or fewer prospective retail customers within a 30-calendar-day period.

A

Correspondence

116
Q

Explain a BD’s obligations regarding its Customer Identification Procedures (CIP).

A

Under CIP, firms are required to obtain and verify certain customer information when opening accounts.

117
Q

If a client wants to know the current market value of his investments, he would look at his __________________.

A

Account Statement

118
Q

What program must be established by BDs to verify the identity of each customer opening an account?

A

Customer Identification Program (CIP)

119
Q

What is filed if a client opens an account with $12,000 and offers $1,000 in cash to keep the teller from filing a CTR?

A

Suspicious Activity Report (SAR)

120
Q

What regulation protects the non-public personal information of customers?

A

Regulation S-P

121
Q

List some examples of retail communication.

A

Newspapers, magazines, radio, TV, videotape displays, publicly available Web pages, blogs, billboards

SIE (20 decks)

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