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Canadian Securities Course V1 > Chapter 3: The Canadian Regulatory Environment > Flashcards

Chapter 3: The Canadian Regulatory Environment Flashcards

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SIE Exam flashcards
1
Q

What is the primary goal of regulators? (2)

A
  1. To protect investors

2. To foster market integrity

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2
Q

What’s required to promote market integrity? (3)

A
  1. Industry employees must meet high proficiency standards
  2. Protection funds provide some protection for investors if a dealer firm goes bankrupt
  3. Regulators have the authority to prosecute wrongdoers in the form of reprimands, finds, suspensions, and even expulsion of licenses
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3
Q

Who’s responsible for regulating?

A

Each province’s securities commission and SROS

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4
Q

What is Canadian Securities Administrators (CSA)?

A

CSA is a joint panel, formed by provinces and territories, to coordinate, improve, and harmonize the regulation of the securities industry across Canada

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5
Q

What is Canadian Securities Administrators’s mission?

A

To develop a national regulatory system that fosters fairness and efficiency while protecting investors from unfair/improper sales practices

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6
Q

What happens if a SRO rule and a provincial securities commission’s rule is different?

A

The stricter of the 2 rules will apply

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7
Q

What is the Investment Industry Regulatory Organization of Canada (IIROC)?

A

IIROC is the national SRO for the securities industry, which monitors dealers and trading activity

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8
Q

What functions do IIROC perform? (5)

A
  1. Financial compliance
  2. Business conduct (sales) compliance
  3. Registration of firms and their licensed associates
  4. Enforcement of rules
  5. Real-time monitoring of trading and market-related activities
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9
Q

What is the Mutual Fund Dealers Association (MFDA)?

A

SRO for the distribution side of the Canadian mutual fund industry

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10
Q

What is the Autorite des marches financiers (AMF)?

A

Quebec’s provincial financial regulator

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11
Q

What is the Chambre de la securite financiere (CSF)?

A

Quebec’s SRO for mutual fund and insurance industry which enforces a code of ethics and determine requirements for licensed persons

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12
Q

What is the Office of the Superintendent of Financial Institutions (OSFI)?

A

OSFI is a regulatory body for all federally regulated financial institutions

OSFI DOES NOT REGULATE THE SECURITIES INDUSTRY

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13
Q

What does OSFI regulate? (4)

A
  1. Deposit-taking institutions like banks, trust companies, loan companies, credit associations
  2. Insurance companies
  3. Federally regulated pension plans
  4. Foreign bank offices that are chartered, licensed, or registered by the federal government to operate in Canada
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14
Q

What is the purpose of investor protection funds?

A

Protect an investor in the event that a financial institution defaults/becomes insolvent

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15
Q

What are the 3 protection funds that will be tested on this exam?

A
  1. Canadian Investor Protection Funds (CIPF)
  2. Mutual Funds Dealers Association Investor Protection Corporation (MFDA IPC)
  3. Canada Deposit Insurance Corporation (CDIC)
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16
Q

What is the Canadian Investor Protection Fund (CIPF)?

A

CIPF is a protection fund that is sponsored by IIROC and funded by IIROC dealer members through quarterly assessments that protects clients of IIROC member firms

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17
Q

What is the primary role of the Canadian Investor Protection Fund (CIPF)?

A

Investor protection

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18
Q

What is the secondary role of the Canadian Investor Protection Fund (CIPF)?

A

Oversee self-regulator system to contain risks

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19
Q

How much does the Canadian Investor Protection Fund (CIPF) protect up to?

A

Up to $1,000,000 in general (non-registered accounts) and another $1,000,000 for registered accounts

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20
Q

What is the Mutual Funds Dealers Association Investor Protection Corporation (MFDA IPC)?

A

Protection fund that protects clients of Mutual Funds Dealers Association member firms

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21
Q

How much does the Mutual Funds Dealers Association Investor Protection Corporation (MFDA IPC) protect up to?

A

Up to $1,000,000 for general accounts and a separate $1,000,000 for separate accounts

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22
Q

What province is the Mutual Funds Dealers Association Investor Protection Corporation (MFDA IPC) not considered an SRO in?

A

Quebec because they have their own protection fund

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23
Q

What is the Canada Deposit Insurance Corporation (CDIC)?

A

Protects clients of member deposit-taking institutions

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24
Q

How much does the Canada Deposit Insurance Corporation (CDIC) protect up to?

A

Provides protection for term deposit/GIC holders up to $100,00 if a deposit-taking institution defaults.

Coverage is per bank.

25
Q

What qualifies for coverage under the Canada Deposit Insurance Corporation (CDIC)?

A

Deposits must be in CAD, payable in Canada, and have a term of 5 years or less.

26
Q

What are provincial insurance corporations?

A

Protection funds for deposits of credit union members. Terms and coverage vary from province to province.

27
Q

Another word for provincial insurance corporations.

A

Deposit insurance corporations, stabilization funds, central credit unions.

28
Q

What are regulator’s four primary regulation objectives?

A
  1. Consumer protection
  2. Fairness
  3. Economic stability
  4. Social objectives
29
Q

Why does the Canadian Securities Industry use “principles-based regulation”?

A

Flexibility, clearer, simpler, and less costly to apply

30
Q

What is the securities regulation standard in Canada?

A

Full, true, and plain disclosure of material information

31
Q

What document is disclosure normally made in?

A

Prospectus

32
Q

Another word for “applicable regulatory body”.

A

Administrator

33
Q

What’s the difference between “investment advisor” and “investment dealer”?

A

IA: permitted to give advice
IR: cannot give advice and can only place trades on behalf of client

34
Q

What criteria does an Investment Advisor need to meet? (5)

A
  1. Completion of CSC
  2. Completion of the Conduct and Practices handbook (CPH)
  3. Completion of 90-day training program before advising the public
  4. Close supervision within the first 6 months of being licensed
  5. Completion of the Wealth Management Essential Course (WME) within 30 months of being licensed
35
Q

What criteria does an Investment Representative need to meet? (4)

A
  1. Completion of CSC
  2. Completion of the Conduct and Practices handbook (CPH)
  3. Completion of 30-day training program before advising the public
  4. Close supervision within the first 6 months of being licensed
36
Q

What is the National Registration Database (NRD)?

A

The National Registration Database is a web-based system used by investment dealers to file a registration request with the SRO.

37
Q

What is the advantage of the National Registration Database (NRD)?

A

The the National Registration Database (NRD) allows licensing of individual in more than one province, satisfying all jurisdictions in Canada.

38
Q

Under what circumstance would the IA and dealer be required to notify the applicable SRO?

A

If a material change occurs (ie. change of employee address, termination, cause of termination)

39
Q

What is the role of a gatekeeper?

A

To keep undesirable people out of the securities industry

40
Q

Who plays the role of a gatekeeper?

A

Any employee of a dealer

41
Q

What are the requirements that gatekeepers are required to fulfill in the securities industry? (3)

A
  1. Collect and record the required client information and ensure it is accurate
  2. Monitor the activity and transactions in client accounts
  3. Report any suspicious transactions or even proposed suspicious transactions
42
Q

What is the KYC rule?

A

Know Your Client Rule (KYC) that SROs require member firms and investment advisors to follow

43
Q

What is the first step to getting to know your client?

A

New Account Application Form (NAAF)

44
Q

Who approves the New Account Application Form?

A

Partner, director, or branch manager

45
Q

What must be included in the mandatory Relationship Disclosure Documents (RDDs) from IIROC’s CRM? (7)

A
  1. Types of produces and services provided
  2. The account relationship the client has consented to
  3. Process used by the dealer to assess KYC info and suitability
  4. Circumstances wen suitability will be reviewed
  5. All fees, charges, costs associated with the account
  6. A description of the dealer’s compliant-handling process
  7. A description of the dealer’s obligation to report perfomance-related information
46
Q

What are the 3 ways conflict of interest is handled?

A
  1. Conflict of interest should be avoided
  2. Conflict of interest should be disclosed and agreed to by the client
  3. The conflict of interest situation should be controlled
47
Q

What is conflict of interested not needed to be disclosed?

A

If the firm has taken steps to control the situation to an extent the risk to the client is eliminated

48
Q

What are the “triggers” of a suitability assessment? (5)

A
  1. A recommendation is made.
  2. A trade is accepted.
  3. Securities are transferred/deposited into an account
  4. Change of representative on the account
  5. Material change in the KYC information for the account
49
Q

What’s the first step if a client feels he/she has been treated unfairly by an SRO and how can the SRO respond?

A

Resolve the method directly with the firm before taking any other action.

SRO can discipline member registrants but cannot order restitution to be made to the client. SRO can offer arbitration.

50
Q

What is the arbitration process?

A

If a claim is less than $500,000 the client can have his/her case heard by an arbitrator and the member firm has no choice but to agree to this process.

If a claim is more than $500,000 both the client and the member firm need to agree to the process.

51
Q

The decision rendered by the arbitrator in an arbitration process is binding on?

A

Both the client and the dealer

52
Q

What must the client and the dealer agree upon before the arbitration process begins?

A

Give up their right to pursue the matter in court

53
Q

What is the Ombudsman for Banking Services and Investments (OBSI)?

A

OBSI aims to settle disputes more amicably by evaluating and recommending a solution. Dealer does not have to comply but if recommendation is rejected, OBSI will publish the matter.

54
Q

Name examples of unethical practices.

A
  1. Deceiving a client on price/value of a security or its risk
  2. Attempting to create false impression of trading in a security
  3. Enter orders to manipulate the market
  4. Making a fictitious trade that has no change in beneficial ownership to mislead the public
  5. High pressure selling techniques/violation of rule or statute
  6. Placing trade ahead of clients for the same security
55
Q

What is “front-running”?

A

Placing trade ahead of clients for the same security.

56
Q

Which organization established rules regarding telemarketing?

A

The Canadian Radio-television and Telecommunications Commission (CTRC)

57
Q

What industry does the National Do No Call List (DNCL) apply to?

A

All industries and cannot call if number has been on list for over 31 days

58
Q

What is the exemption for DNCL?

A

If person has specifically given permission to be called.

Canadian Securities Course V1 (10 decks)

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