Volume 1- Chapter 3 Flashcards
What is the primary responsibility of each province and territory in Canada regarding the securities industry?
Creating legislation and regulation for the securities industry.
What is the role of the Canadian Securities Administrators (CSA)?
To improve, coordinate, and harmonize regulation of the Canadian capital markets.
True or False: The CSA has developed national policies that apply in every provincial and territorial jurisdiction.
True.
What does a self-regulatory organization (SRO) do?
Regulates its own members and enforces conformity with securities legislation.
What is the Canadian Investment Regulatory Organization (CIRO)?
Canada’s national self-regulatory organization overseeing investment dealers and mutual fund dealers.
Fill in the blank: CIRO monitors dealer members for _______ compliance.
Financial.
List four functions performed by CIRO.
- Financial compliance
- Business conduct compliance
- Registration
- Enforcement
What does the Office of the Superintendent of Financial Institutions (OSFI) regulate?
- Deposit-taking institutions
- Insurance companies
- Foreign bank representative offices
- Federally regulated pension plans
True or False: OSFI regulates the Canadian securities industry.
False.
What is the primary role of the Canadian Investor Protection Fund (CIPF)?
Investor protection.
What does the Canadian Deposit Insurance Corporation (CDIC) insure?
Eligible deposits up to $100,000 per depositor in each member institution.
Name three types of accounts covered by CDIC.
- Savings accounts
- Guaranteed investment certificates
- Foreign currency deposits
Fill in the blank: The Financial Services Regulatory Authority of Ontario (FSRA) was established to improve _______ protections.
Consumer.
What is the purpose of the Financial Professionals Title Protection Rule introduced by FSRA?
To establish minimum educational requirements and professional expectations.
True or False: CIRO regulates mutual funds directly.
False.
What principle guides the priority of interests for financial planners in Ontario according to FSRA?
Putting the client’s interest first.
List two types of regulations that apply to the securities industry beyond provincial rules.
- Criminal Code of Canada
- Legislation regarding money laundering
What happens when two or more regulations conflict in the securities industry?
The strictest standard applies.
What is the role of the Chambre de la sécurité financière (CSF) in Quebec?
Regulates the mutual fund and insurance industry.
Fill in the blank: The CIPF protects eligible customers in the event of the _______ of dealer members.
Insolvency.
What is the maximum coverage provided by the CIPF for accounts combined as a general account?
$1 million.
What is the purpose of investor protection funds in the securities industry?
To protect against loss from the financial failure of firms in the self-regulatory system.
What types of institutions does the CDIC provide deposit insurance for?
Banks, trust companies, and loan companies.
List three sectors regulated by the Financial Services Regulatory Authority of Ontario (FSRA).
- Financial planners and advisors
- Life and health insurance
- Credit unions and caisses populaires
What is the main purpose of regulation in the securities industry?
To protect the integrity of capital markets and the interests of investors
Regulators aim to address risks and challenges arising from structural changes in the industry.
Define demutualization.
The process of a company converting from being owned by its members to being owned by shareholders
This change can affect the governance and operation of the company.
What is corporate governance?
The system of rules, policies, and procedures by which a company is controlled
It balances the interests of stakeholders such as management, shareholders, and the community.
True or False: Inadequate corporate governance can have a ripple effect throughout the securities industry.
True
A failure at one firm can lead to loss of confidence across the entire industry.
List the four primary objectives of regulators in the securities industry.
- Consumer protection
- Fairness
- Economic stability
- Social objectives
What is the difference between principles-based regulation and rules-based regulation?
Principles-based regulation sets broad objectives; rules-based regulation imposes detailed rules
Principles-based allows flexibility but requires good judgment.
What is the general principle underlying Canadian securities legislation?
Full, true, and plain disclosure of all pertinent facts by those offering securities
This principle ensures that investors have the necessary information to make informed decisions.
Fill in the blank: The National Registration Database (NRD) is used for _______.
[filing registration forms electronically]
What are the key regulatory amendments introduced by the Client Focused Reforms (CFRs)?
- Conflicts of interest amendment
- Know Your Client (KYC) requirements
- Suitability obligations
- Know Your Product (KYP) requirements
- Relationship disclosure
What does the term ‘gatekeeper’ refer to in the securities industry?
The role of investment advisors in preventing wrongdoing by clients
Gatekeepers monitor client activities and report suspicious transactions.
True or False: Investment Advisors (IAs) are not required to collect and record client information.
False
IAs must maintain accurate and complete records of client information.
What is the purpose of the conflicts of interest amendments in the CFRs?
To align the interests of securities registrants with those of their clients
The goal is to improve client outcomes and clarify the nature of the client-registrant relationship.
What are the three methods used by securities acts to protect investors?
- Registration of securities dealers and advisors
- Disclosure of necessary facts
- Enforcement of laws and policies
What is required of registrants regarding the Know Your Client (KYC) obligation?
Registrants must collect an expanded list of information and confirm its accuracy
This ensures that investment recommendations are suitable for the client.
List the requirements for addressing material conflicts of interest as per NI 31-103.
- Identify material conflicts
- Address conflicts in the best interest of the client
- Avoid conflicts if they cannot be addressed
- Disclose conflicts to clients
What is the role of the Self-Regulatory Organization (SRO) in the securities industry?
To ensure compliance with legislation among its members
The SRO plays a crucial role in maintaining industry standards.
What must be done regarding material conflicts of interest in a firm?
They must be addressed in the best interests of the client.
If conflicts cannot be addressed, they must be avoided.
When should a firm disclose material conflicts of interest to clients?
At the time of account opening or in a timely manner if identified later.
Disclosures must be prominent, specific, and in plain language.
What information must be included in the disclosure of a conflict of interest?
- Nature and extent of the conflict
- Impact and risk to the client
- How it has been or will be addressed.
True or False: Relying solely on disclosure is sufficient for registrants under conflict provisions.
False.
Registrants must also address conflicts appropriately.
What are the foundational pre-conditions to suitability in the KYC and KYP obligations?
Understanding the client and the product.
Neglecting either may lead to non-compliance.
What KYC information is required to meet suitability obligations?
- Personal circumstances
- Financial circumstances
- Investment knowledge
- Investment needs and objectives
- Risk profile
- Investment time horizon.
What does a client’s risk profile encompass?
Risk tolerance and risk capacity.
Risk tolerance is willingness to accept risk; risk capacity is ability to endure financial loss.
How often must KYC information be reviewed according to the CFRs?
Every 36 months.
Updates are also required when significant changes occur.
What triggers a suitability determination according to CFR guidelines?
- A trade is accepted
- A recommendation is made
- Securities are transferred or deposited
- Change of representative or portfolio manager
- Material change to KYC information.
What is the Know Your Product (KYP) rule?
Representatives must understand the products in a client’s account.
This includes features, risks, costs, and performance expectations.
What must the relationship disclosure document include?
- Description of account type
- Types of products and services
- Risks of investment
- Risks of borrowed money
- Conflicts of interest
- Operating charges
- Complaint handling procedures
- Suitability statement
- Investment performance benchmarks
- Reporting information.
What is the first step for clients seeking remediation against a dealer member?
Attempt to resolve the dispute directly with the firm.
What is arbitration in the context of dispute resolution?
A method where an independent arbitrator resolves disputes and decides remedies.
Arbitration is often cheaper and faster than court.
What criteria must be met for a dispute to be eligible for arbitration?
- Dispute attempts have been made with the investment dealer
- Claim does not exceed $500,000.
- Higher amounts may be arbitrated if both parties agree.
What role does the Ombudsman for Banking Services and Investments (OBSI) play?
Investigates customer complaints against financial services providers.
OBSI provides prompt and impartial resolution but is not binding.
Why are high ethical standards important in the securities industry?
They ensure public confidence and allow corporations to raise capital.
Unethical practices can lead to fines, suspension, or criminal charges.
List examples of unethical practices in securities trading.
- Deceiving the public about transaction prices
- Creating misleading appearances of active trading
- Fictitious trades
- High-pressure selling techniques
- Misleading clients about risks
- Front running.
What regulations exist to curb unethical selling practices?
Securities legislation prohibits certain types of selling activities.
What must telemarketers do according to the National Do Not Call List?
Subscribe to the DNCL and refrain from calling registered numbers.
Exemptions apply for specific types of calls.
