Overview of Regulatory Framework (Orange Cards) Flashcards
Which Of the following is NOT true regarding customer complaints?
A. Complaints cannot be resolved using mediation.
B. Complaints must be submitted in writing.
C. Complaints can be solved using a formal or informal process.
D. Complaints are submitted to the Financial Industry Regulatory Authority (FINRA).
A:
Complaints can be solved using mediation if it is an informal proceeding. Complaints are submitted co FINRA in writing and are solved using either formal Or informal proceedings.
As a securities industry professional, which of the following situations is considered a reportable event that
must be disclosed to regulators?
A) Being issued a speeding ticket
B) Volunteering at a charity event
C) Filing for personal bankruptcy
D) Attending an industry conference
C:
Personal bankruptcy is considered a reportable event because it demonstrates financial instability and raises questions about your ability co-manage assets. Choice A is not a reportable event, as it is a minor infraction. Choice C is not a reportable event, as it has no negative effect on your duties. Choice D is not a reportable event, as it does not raise any concerns about your abilities.
Which of the following entities is NOT considered a self-regulatory organization (SRO) in the securities industry?
A) Financial Industry Regulatory Authority (FINRA)
B) New York Stock Exchange (NYSE)
C) National Association of Securities Dealers (NASD)
D) Federal Reserve System
D:
The Federal Reserve System is not considered an SRO; it is the United States’ central banking system and manages monetary policy and bank regulation. FINRA, the NYSE, and the NASD are examples of SROs.
When a client has a dispute with an investment advisor,
which type of complaint must be submitted to FINRA for resolution?
A) Verbal Complaint
B) Electronic Complaint
C) Formal Written Complaint
D) Informal Text Message Complaint
C:
Choice C is correct because FINRA requires that disputes with an investment advisor be submitted through a formal written complaint, ensuring proper documentation and
follow-up. Choices A, B, and D are incorrect because a verbal complaint, electronic complaint, or informal text message complaint does not meet the standard of formality and
documentation required by FINRA for dispute resolution.
When a registered representative (RR) has an interest in an account at another firm, what must the firm do before conducting any transactions?
A) Notify the RR’s employer by phone
B) Deliver duplicate documents for the account
C) Notify the Securities and Exchange Commission (SEC)
D) Make a note in the RR’s file
B:
The firm must deliver duplicate documents for the account. They must also notify the RRs employer in writing rather than by phone. Notifying the SEC and making a note in the RR’s file is not one of the steps that a firm must take when an RR has a personal investment account outside of their firm.
Which of the following forms is used to terminate the registrations of representatives with a specific self-regulatory organization or jurisdiction?
A) Form U4
B) EMMA
C) Form U5
D) TRACE
C:
Form U5 is used to terminate the registrations of representatives with a specific self-regulatory organization or jurisdiction. U4 is used to register representatives, EMMA is the system that tracks information about municipal securities. TRACE is the system by which all broker-dealers must report the information pertaining to trades involving
certain fixed-income securities that are traded over-the-counter, on the secondary market, or not on a regulated exchange.
Which of the following is true of continuing education for registered persons?
A) There are three elements: regulatory, firm, and personal.
B) Organizations that employ registered persons must
evaluate members’ securities knowledge biannually.
C) Organizations must document their written plan and its implementation.
D) FINRA details specific points that must be covered in
the training plan.
C:
Member organizations must document their written plan and its implementation. Continuing education includes two elements, regulatory and firm. Organizations must assess employees’ knowledge annually. FINRA provides a minimum
number of topics that must be covered in training plans, but not specific points.
Who has first jurisdiction over a complaint filed using
formal proceedings?
A) District Business Conduct Committee (DBCC)
B) Supreme Court
C) FINRA Board of Governors
D) Securities and Exchange Commission (SEC)
A:
The District Business Conduct Committee (DBCC) has first jurisdiction over a complaint filed using formal proceedings. If the customer is unhappy with how the complaint is
handled, the next Step is to appeal to the FINRA Board of Governors or even to the Supreme Court. The SEC is not generally involved in this process.
Which of the following is true about political donations by employees of member firms?
A) Payment to political sources must be disclosed to FINRA.
B) Payments to local governments do not count towards the donation limit.
C) Political contributions cannot exceed $250 per person.
D) Payments to political sources must be documented.
D:
Payments to political sources must be documented and disclosed to the firm’s board of directors or senior executive team. Payments to local, state, and federal governments are
all included in prohibited political donations. Contributions cannot exceed $250 per person or per political party per year.
Regulated entities cannot receive more than how much money per person per year if the compensation is related to municipal securities?
A) $100
B) $50
C) $200
D) $150
A:
Regulated entities cannot receive more than $100 per person per year if that compensation is based on their activities concerning municipal securities.
According to Article XV of the FINRA by-laws, what action should a committee member take in cases of conflicts of interest?
A) Recuse themself of involvement and responsibility over the matter.
B) Seek approval from the board or Committee before
proceeding.
C) Report the conflict to the Chief Executive Officer.
D) Attempt to personally reassign responsibility to
another member.
A:
Choice A is correct because the article in question requires a committee member with a conflict of interest to recuse themself of the conflict and refrain from any participation in
any adjudication of interests with the conflicting party.
Choice B, seeking approval from the board / committee, Choice C, reporting to the CEO, and Choice D, attempting to personally handle reassignment, are not mentioned anywhere as required courses of action in Article XV.
Which of the following is true of Political Contributions
by FINRA member firms?
A) They are prohibited at all times
B) They are only prohibited during federal elections
C) They are allowed as long as they are disclosed to the firm’s board or senior executive team
D) They are allowed as long as they do not exceed $250 per person or per political party per year
A:
FINRA Rule 2030 prohibits FINRA member firms from directly or indirectly giving money or anything of value to a political party, candidate, or officeholder. This applies at all times, including federal, state, and local elections, and to both domestic and foreign candidates and officeholders. The rule includes exceptions for activities such as personal
activities by employees and activities by political consulting firms.
According to the Financial Industry Regulatory Authority
(FINRA) regulations, which of the following elements is required to be included in options trade confirmations?
A) The broker’s personal preferences.
B) The expiration date of the options contract.
C) The customer’s personal details unrelated to the transaction.
D) The firm’s preferred stock.
B:
FINRA requires the expiration date of the options contract to be included in the options trade confirmation. This is crucial for the investor as it signifies the final day the option can be exercised. Choice A is incorrect because it does not have any relevance to the transaction; Choice C is incorrect because unrelated the transaction and unnecessary; and Choice D is incorrect because it is not required to be included.
Which of the following happens to a proposed or existing SRO if it is in conflict with a statute?
A) It is immediately approved as an SRO.
B) It is rejected as an SRO.
C) It is required to undergo a background check and fingerprinting.
D) It may still be approved as an SRO despite being in conflict with a statute.
B:
If a proposed or existing SRO is in conflict with a statute, it will likely be rejected. Choice A is incorrect because the SRO will not be immediately approved if it is in conflict with a statute; Choice C is incorrect because undergoing a background check and fingerprinting is not directly related to whether the SRO conflicts with a statute; Choice D is
incorrect because an SRO cannot be approved if
it conflicts with a statute.
Which of the following is the primary role of the North American Securities Administrators Association (NASAA) with respect to state-level securities regulation?
A) Enforcing state securities laws.
B) Drafting model securities acts for states to adopt or revise.
C) Licensing securities professionals at the state level.
D) Overseeing the registration of securities offerings in each state.
B:
The NASAA is an organization made up of state and provincial securities administrators from the United States, Canada, and Mexico responsible for promoting investor protection by ensuring that state securities laws and
regulations are consistent and coordinated across multiple jurisdictions, in part by developing and revising securities acts.
