Chapter 5 - Section 2 - Other Regulations

Question 1

The ______________________ is a bureau within the U.S. Department of the Treasury. Its primary role is to combat financial crimes, such as money laundering and terrorist financing. FinCEN collects and analyzes financial transaction data, supports law enforcement investigations, and collaborates with international organizations to enhance global financial security.

Answer 1

Financial Crimes Enforcement Network (FinCEN)

Question 2

______ _______________ is the acceptance of large amounts of cash from individuals or businesses where the money is suspected of being used for illegal purposes.

Answer 2

Money Laundering

Question 3

What are the three stages of money laundering?

Answer 3

1. placement
2. layering
3. integration

Question 4

Financial firms must file a Currency Transaction Report (CTR) for transactions involving currency (cash) over $_____________ for one person in the aggregate in a single business day.

Answer 4

$10,000

Question 5

If a person has a financial account in a foreign country that person must report the relationship if the aggregate value of the account exceeds $_____________.

Answer 5

$10,000

Question 6

Financial firm who transfers funds, including wire fund transfers of $__________ or more, must collect, retain, and record certain information.

Answer 6

$3,000

Question 7

The money laundering abatement act imposes additional customer identification requirements on financial firms including:

Answer 7

• Verification of Customer Identity within 5 business days
• maintain customer identity records
• check that the customer does not appear on any terrorist list or list of embargoed countries.

Question 8

Any transaction conducted through a financial firm involving funds or assets of $______ or more is required to file a __________. It must be filed within ___ days.

Answer 8

$5,000, Suspicious Activity Report, 30

Question 9

Correspondence includes any written (including electronic) communications to ____ or fewer retail investors within any ____ day calendar period.

Answer 9

25; 30

Question 10

Appropriate qualified principal approval is not required, but all correspondence is subject to supervision and review by the member firm.

Answer 10

True

Question 11

The term __________ investor includes both prospective and existing clients.

Answer 11

retail

Question 12

Retail communications include any written (including electronic) communications to more than ____ retail investors within any ____ day calendar day period. This category includes advertisements, sales literature, and most independently prepared reprints.

Answer 12

25; 30

Question 13

True or False: Appropriately qualified registered principal approval is required before the earlier of its use or filing with FINRA.

Answer 13

True

Question 14

A ______ ____ is a type of investment company that sells shares of its own stock to investors and then pools those funds together for the purpose of investing those funds in different securities in the pool or portfolio that it will manage.

Answer 14

mutual fund

Question 15

A _____ ____, often simply called a ____, is a fee or commission charged to an investor when buying or selling shares in a mutual fund.

Answer 15

sales load, load

Question 16

Paid when you purchase shares, reducing your initial investment.

Answer 16

Font-end load

Question 17

__ - ____ means that an investor can buy and then later redeem mutual fund shares without having to pay a sales load.

Answer 17

no-load funds. Generally, have an expense ratio of approximately 50 basis points and are allowed to charge 12b-1 fees.

Question 18

A ___-_ fee is an annual fee charged by some mutual funds to cover marketing and distribution expenses. Named after a section of the Investment Company Act of 1940, this fee is considered an operational expense and is included in the fund’s expense ratio.

Answer 18

12b-1

Question 19

A ____ _______ requires you to pay for securities in full with the cash available in your account.

Answer 19

cash account

Question 20

A ______ _______ allows you to borrow money from your broker to buy securities, using the securities in your account as collateral.

Answer 20

margin account

Question 21

In a margin account, an investor is generally required to deposit ____% of the purchase price when buying stock.

Answer 21

50% (Regulation T)

Question 22

According to a NASAA Statement of Policy, the margin account documents that require a signature must be signed by a customer promptly _____ the first transaction.

Answer 22

after

Question 23

What are the 3 agreements required for a margin account?

Answer 23

• the credit agreement
• the hypothecation agreement
• the loan consent agreement

Question 24

A ____ option gives the buyer the right to purchase 100 shares of the underlying stock at a set exercise prices for a limited period of time.

Answer 24

Call. Call it away from the seller.

Question 25

A ____ option obligates the seller to sell 100 shares of the underlying security at the exercise price for a limited period of time if the buyer exercises the option.

Answer 25

Call

Question 26

A ___ option gives the buyer the right to sell 100 shares of the underlying stock at a set exercise price for a limited period of time.

Answer 26

Put. Put it to the seller.

Question 27

A ___ obligates the seller to buy 100 shares of the underlying stock at a set exercise price for a limited period of time if the buyer exercises the option.

Answer 27

Put

Question 28

An order ticket for a securities transaction must include:

Answer 28

• the account number
• the time the order was received
• the agent on the account
• the terms and conditions of the order

Question 29

True or False: The price and time that the order is received needs to be on the order ticket.

Answer 29

False. It does not need to be on the order ticket.

Question 30

True or False: The exchange or name of the market maker who executed the order does not need to be on the order ticket?

Answer 30

True

Question 31

These funds aim to invest in companies that are not only financially sound but also demonstrate positive environmental practices, social responsibility, and strong governance standards.

Answer 31

ESG Funds (Environment, Social and Governance)

Question 32

True or False: NASAA requires broker-dealers to report suspected financial exploitation of eligible adults to state regulators and Adult Protective Services (APS) agencies.

Answer 32

True

Question 33

According to the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, an “eligible adult” is defined as any person who is age __ or older and any person who is age __ or older and who the firm reasonably believes has a mental or physical impairment that renders the person unable to protect his own interests.

Answer 33

65; 18

Question 34

What must financial professionals do if they suspect financial exploitation?

Answer 34

They must report the suspected exploitation to state securities regulators and Adult Protective Services (APS).

Question 35

What action can financial firms take if they suspect financial exploitation?

Answer 35

• They can delay disbursements from an account to investigate the suspected exploitation for up to 15 days.

15 business days after the date that the broker-dealer or investment adviser first delayed disbursement of the fund, unless either the state Administrator or APS agency requests that the delay be extended, in which case, the delay will expire no more than 25 business days after the first disbursement delay was initiated.

Question 36

Can financial firms disclose information to third parties under the NASAA Model Act?

Answer 36

Yes, but only to designated third parties unless the third party is suspected of being involved in the exploitation.

Question 37

A _______________ is a social media influencer who shares advice and information on financial topics. These can include saving, investing, cryptocurrency, and more. They typically use platforms like YouTube, Instagram, TikTok, and Twitter to reach their audience.

Answer 37

finfluencer

Question 38

What should you be cautious of if an investment promises unusually high returns with little or no risk?

Answer 38

Guaranteed high returns are a red flag, as high returns typically come with higher risks.