Ch. 15 Compliance Flashcards
What items are acceptable as proof of identity under the Customer Identification Program (CIP)?
Passport or driver’s license (both have a picture)
If a client refuses to provide certain information, may the account still be opened?
Yes, although name and address are required.
Describe the term structuring as it relates to money laundering.
When a customer deposits or transfers assets below the reporting thresholds in an attempt to avoid detection
What protects a brokerage client from theft or embezzlement?
The posting of a fidelity bond by the BD
True or False: Using a P.O. Box as an address is not acceptable to open an account.
True. An actual address is required; however, mail may be sent to a P.O. Box.
Under the TCPA, how is an established customer defined?
One that has made an unsolicited inquiry or effected a transaction with the firm
Under Regulation SP, a _________ is someone who has an ongoing relationship with a firm.
Customer
True or False: There are no suitability requirements for institutional investors.
False. Although they differ from retail requirements, suitability requirements do apply to institutional investors.
What would a customer find on her account statement?
The current value of all securities, number of shares, and all dividends and interest received
Define correspondence.
Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.
In the process of opening a new account, when must an RR obtain customer information?
Prior to entering the first order
How often must anti-money laundering (AML) programs be tested?
Annually, by an independent source
What are the different methods a firm may use to provide disclosure regarding its business continuity plan?
A disclosure statement is provided at account opening, posted on its Website, or mailed to clients upon request.
Based on written instructions, a B/D may hold customer correspondence for _____ months.
3 months
True or False: Trade confirmations may be sent electronically.
True
Identify the acronym: AML
Anti-money laundering
In what different forms may retail communications be delivered?
Written or electronic
Give examples of information included on a customer statement.
Name of securities (issuer), number of shares owned, price or market value of securities, and dividends or interest paid
List three reasons that would warrant updating a customer account form
Changes to the customer’s name, address, or occupation
Under Regulation SP, a _________ is someone who gives nonpublic, personal information to a BD that may result in trades.
Consumer
True or False: Reviewing account statements allows clients to identify problems or deficiencies in their accounts.
True
True or False: FINRA’s suitability rules for institutions are less stringent when compared to the rules for retail investors.
True
True or False: An RR may send a confirmation for a trade he believes will occur soon.
False. Trade confirmations may only reflect actual transactions.
Regulation S-P requires clients be provided with a ______________ detailing how BDs handle personal client information.
Privacy Notice
True or False: Only physical account statements may be provided to clients.
False. Account statements may also be made available electronically.
For their customers with free credit balances, BDs must provide notification at least ___________.
Quarterly
When must the privacy notice be provided to customers?
When the relationship is first established, followed by an updated version annually
When is a Currency Transaction Report (CTR) or FinCEN Form 104 filed?
Within 15 days following the transaction
___________________________ is material distributed or made available only to institutional investors.
Institutional communication is material distributed or made available only to institutional investors.
May a customer request to have trade confirmations e-mailed to her?
Yes. Sending trade confirmations electronically is acceptable.
True or False: Clients need not sign the account form for a cash account.
True, but signature would be required for an option or a margin account.
When must the Reg S-P privacy notice be provided to a customer?
At the time of the account opening and annually thereafter
True or False: A BD may create account statements on trades it believes will occur.
False. Statements may only reflect actual transactions.
True or False: FinCEN is a government agency that provides financial intelligence to law enforcement officials.
True. FinCEN is part of the Department of Treasury and protects the U.S. financial market from corruption.
True or False: On request, institutional communication may be provided to a retail client.
False. Institutional communication may never be provided to a retail investor.
True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.
False. The list shows the names of suspected terrorists and criminals.
When must customer confirmations be sent?
By the completion of the transaction (usually the settlement date)
How often must a firm provide customers with a privacy statement?
At the time of account opening and annually thereafter
According to FINRA rules, list some of the persons that are considered institutional investors.
Banks, insurance companies, investment companies, investment advisers, FINRA members and their RRs
What should an agent consider when determining suitability for an institutional client?
Whether the client is acting independently and has the capability to understand the risks
BDs are required to maintain certain records for either ______ years, ____ years, or the _________ of the firm.
3 years, 6 years or a lifetime
True or False: Broker-dealers that act as trustees for corporations can use shareholder lists to cold-call or prospect.
False. This is a violation of FTC rules.
True or False: Whether a BD acted as an agent or principal on a trade is shown on the account statement.
False. Firm capacity is identified on the trade confirmation.
Identify the acronym: CIP
Customer Identification Program
What may a client review to identify any discrepancies in securities positions or cash balances in her account?
Account Statement
True or False: A business continuity plan must address how a firm will communicate with its clients and employees.
True
What triggers a BD’s filing of a Currency Transaction Report (CTR)?
Any cash transaction executed by a customer during one day that exceeds $10,000
Identify the acronym: SAR
Suspicious Activity Report
Define the term structuring as it relates to money laundering.
Breaking up large transactions into smaller amounts in an attempt to evade AML reporting requirements
Customers must be provided with a statement of account not less than once every calendar ________.
Quarter
What information is included on a customer account statement?
Securities positions, cash balances, and any purchase, sale, transfer, or distribution activity since the last statement
A posting on a BD’s Facebook or Twitter page is considered what form of communication?
Retail Communication
Account statements must be sent to customers at least ____________.
Quarterly
For active accounts, account statements must be sent ____________.
Monthly
How often must member firms send clients an account statement?
Quarterly
What is the purpose of a BD’s business continuity plan?
To prepare for significant business disruptions, including natural disasters
True or False: A BD’s business continuity plan includes the home addresses and names of key employees.
False
True or False: A customer confirmation is only required to disclose whether the firm was acting in an agency capacity.
False. Confirmations must disclose whether a firm acts in an agency or principal capacity.
If a client refuses to disclose her age when opening an account, what should the BD explain to her?
The firm should explain that without proof of age, an account may not be opened.
What list must be checked to identify suspected terrorists and criminals?
OFAC List (Treasury Department’s Office of Foreign Assets Control)
BDs are required to monitor the status of all fully paid and excess margin securities on a _______ basis.
Daily
All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.
must be kept for 3 years and easily accessible for 2 years
According to FINRA, what are the three categories of communications with the public?
Correspondence, Institutional Communication, and Retail Communication
May client information be given to a third party?
Only if the third party has legal authority (e.g., IRS) or the client provides written consent
Describe the term layering as it relates to money laundering.
A situation where a customer deposits money in various accounts with different owners in an attempt to evade detection
True or False: Customer securities are under the control of a BD if they are held at a custodian bank or clearing corpration.
True
What must be checked before a BD makes telephone solicitations?
Firm’s Do Not Call List
Under the communication rules, group e-mail sent to more than 25 retail investors is considered ____________________.
Retail Communication
What triggers a BD’s filing of a Suspicious Activity Report (SAR)?
Any suspicious transactions of $5,000 or more
True or False: Correspondence is any written or electronic message sent to more than 25 existing or potential clients.
False. Correspondence is communication sent to 25 or fewer retail investors over a 30-calendar-day period.
What must be addressed in a BD’s business continuity plan?
The process for communicating with regulators and mission-critical systems (computers) required to continue business
True or False: The capacity in which a firm acts appears on both the confirmation and the order ticket.
False. Firm capacity is disclosed on the confirmation, not the order ticket.
When dealing with institutional client suitability, what are two important considerations?
The client’s ability to evaluate independently the risk and the extent to which they are exercising that ability.
What form must be filed by BD employees who believe that a check has been tampered with or forged?
Suspicious Activity Report
What is the OFAC List?
The Office of Foreign Assets Control of the U.S. Treasury List; it identifies suspected terrorists and criminals
In a firm’s business continuity plan, how many emergency contacts must be provided?
Two, at least one of whom must be a member of senior management and a registered principal of the member firm
When is a CTR required to be filed?
Within 15 days of the activity
Under the Customer Identification Program of the USA PATRIOT Act, what information MUST be obtained about a client?
Date of birth, name, address, and an ID number
All documents are to be maintained readily accessible for the first ___ years.
2 years
What are some examples of retail communication?
Newspapers, magazines, radio, TV, billboards, generally accessible Web sites
RRs who make recommendations that require continued purchases must consider their clients’ ______________.
Ability to pay
Based on written request, what is the maximum period that a B/D may hold customer correspondence?
Three months. To exceed three months, the customer must provide the B/D with a valid reason for the request.
If a firm acts in an agency capacity, the ___________ must be disclosed on a confirmation.
Commission
How often must an updated copy of the privacy notice be provided to customers?
At least once during each 12-month cycle
The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.
The Telephone Consumer Protection Act (TCPA), allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.
Excess margin securities are those whose value exceeds _____% of the customer’s debit balance.
140%
Identify the acronym: OFAC
Office of Foreign Assets Control List (U.S. Treasury Department’s list of suspected terrorists and criminals)
Define institutional communication.
Written or electronic communication that is distributed or made available only to institutional investors
When are firms required to provide a non-customer (consumer) with a copy of their privacy notice?
Prior to the sharing of non-public personal information
True or False: A B/D that holds customer mail for more than three months must obtain a valid reason from the customer.
True. The broker-dealer must also obtain the customer’s request in writing.
Under the Customer Identification Program, may accounts be opened for clients refusing to provide required information?
NO!
When is a privacy notice presented to a customer?
At account opening and annually
Where may a client find details about her purchases, sales, credits, debits, dividend payments, receipts or deliveries?
Account statement
When is confirmation of a transaction sent to a client?
No later than the completion of a transaction
According to Regulation SP, what information must be included in a BD’s privacy notice?
Type of personal information collected, third parties with whom the information is shared, and an opt-out provision
John has opened an account with a BD. When is the firm required to provide John with a privacy notice?
Since John is a customer, it must be provided at the time the account is opened and annually thereafter
What must a firm obtain prior to sending a client’s account statements to a third party?
Specific written instructions from the account owner
Identify the acronym: FinCEN
Financial Crimes Enforcement Network
Customer account information must be updated every ____ months.
36 months (3 years)
What report is filed when financial transactions have no apparent business purpose?
Suspicious Activity Report
What should an RR recommend to a client who is looking for an exciting investment?
Nothing, since exciting is not a valid objective
List some items that are found on a customer confirmation.
Trade date, time of trade (or available on request), buy/sell, description, price, number of shares/units, CUSIP number
Along with Web pages, what are some other examples of retail communication?
Notices, circulars, research reports, form letters, telemarketing scripts, and widely distributed instant messages
True or False: A client may not be informed of the filing of a Suspicious Activity Report.
True
If a registered representative is found guilty of facilitating money laundering, what is the maximum penalty?
20 years in prison and a fine of up to $500,000 or twice the amount of the funds involved—whichever is greater.
Identify the acronym: CTR
Currency Transaction Report
True or False: Under Regulation SP, requiring a client to write a letter to opt-out of information sharing is allowed.
False
Under FINRA’s communication rules, form letters sent to 12 retail investors is considered ______________.
Correspondence
True or False: When opening a customer account, a P.O. Box may be used.
False unless miltary
True or False: An RR may delay sending an account statement if the customer is losing money.
False
True or False: Commissions paid on transactions will be disclosed on a client’s account statement.
False. Commission disclosure is made on the trade confirmation.
Do clients need to sign a letter of authorization (LOA) to begin receiving confirmations and statements electronically?
No
When does a firm file a Suspicious Activity Report (SAR)?
When it knows or believes the client’s funds derived from illegal activities, or the trades have no legitimate purpose
True or False: All customer account-related information must be delivered physically.
False. On request, BDs are permitted to deliver both confirmations and statements electronically.
_______________ is any communication sent to 25 or fewer prospective retail customers within a 30-calendar-day period.
Correspondence
Explain a BD’s obligations regarding its Customer Identification Procedures (CIP).
Under CIP, firms are required to obtain and verify certain customer information when opening accounts.
If a client wants to know the current market value of his investments, he would look at his __________________.
Account Statement
What program must be established by BDs to verify the identity of each customer opening an account?
Customer Identification Program (CIP)
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?
Suspicious Activity Report (SAR)
What regulation protects the non-public personal information of customers?
Regulation S-P
List some examples of retail communication.
Newspapers, magazines, radio, TV, videotape displays, publicly available Web pages, blogs, billboards
