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118 Cards in this Set

  • Front
  • Back
In today’s environment what functions are typically the responsibility of the compliance department?
Monitoring, assessing, reporting and advising
In the past, the focus of the compliance role was primarily on surveillance. Recently, this focus has become accompanied by another function that is equally important. What is this other function?
Advisory function.
A firm’s culture of compliance is largely based on employee’s accordance with...
The spirit of the law
Which of the following groups of individuals are involved in developing a dealer’s compliance culture?
The board of directors, senior management, the compliance department and supervisors.
How do directors and senior managers establish a “tone
from the top” within an organization?
Stress the importance of the compliance department to the rest of the firm, and demonstrate its support for the department.
What is the main purpose of regulation?
To foster an environment of fairness and protect the integrity of the marketplace.
How is the principle-based approach to regulation best
Setting objectives for registered dealers and allowing them to decide how best to meet those objectives.
The principle-based approach, when compared to the rules based approach is:
Clearer, simpler and less costly to implement than a rule-based approach.
The rules-based approach, compared to the principle-based approach is based mostly on:
For a CCO, what are the two most important SROs?
IIROC and the Montreal Exchange (Bourse de Montréal).
What SRO is responsible for enforcing the Rules regarding trading activities of individuals and dealer members?
The Investment Industry Regulatory Organization of Canada (IIROC).
In addition to disciplinary and regulatory sanctions, a breach of the Rules may also lead to civil litigation and criminal proceedings against what party (parties)?
A dealer member firm and/or its representatives.
The standard of proof that must be proven in a civil
proceeding is:
Based on a balance of probabilities (ie: more than a 50/50 standard).
Dealer members have a duty to provide advice to clients
fully, honestly, in good faith and applying skill and knowledge. Which of the following three breaches are involved in the most common actions against dealers?
Know your client, suitability and confidentiality breaches.
Which securities related offences appear in the criminal
Fraud, theft and forgery
Crime is considered to be a wrong against which party
What is the risk-based approach trying to balance?
The significance of risks and the availability of resources to mitigate risk.
Which of the following best describes a risk-based
Assessing risk and allocating resources accordingly
What contributes to a firm’s internal risk?
Quality of management and staff.
What time of external risk typically arises from criminal and quasi-criminal conduct?
Each dealer member is categorized and ranked relative to all other dealer members under IIROC’s jurisdiction, to determine where they lie on the risk
trend report. What factors contribute to a firm being ranked as bearing higher risk, with respect to its peers?
The firm’s engagement in discount brokerage, institutional trading, and corporate finance transactions
. IIROC’s Surveillance & Compliance Division creates a Risk Trend Report (RTR) for every dealer member. When compiling this report, what conditions are evaluated?
The financial condition and business condition of the firm.
The Risk Trend Report (RTR) is developed using information that is available to which groups?
Financial & Operations Compliance (FinOps), Business Conduct Compliance (BCC) and the Complaints and Settlements Reporting System (ComSet).
What does the role of the CCO try to balance?
Compliance and business.
What perception of compliance should a CCO attempt to create?
Since ethics are often defined by perception, what type of risk becomes crucial to firms with respect to being perceived as ethical?
Reputation risk.
Firms that are considered to be ethical, are also often considered to be:
Which of the following frameworks is attributed to ethical
decision making?
Duty of care, responsibility, compassion
Acting in good faith is the belief that one is doing the right thing. Which ethical decision-making value does this pertain to?
In which type of Right vs. Right ethical dilemma, do the
values of fairness, equity, and righteousness conflict with the values of compassion and empathy?
Justice vs. mercy.
What is a common element between all four types of right vs. right dilemmas?
A degree of right.
A firm’s code of ethics will assist in guiding employees on what approach to take to make ethical decisions. If a code suggested that the resolution principle should result in the greatest good for the greatest number of people, what approach does this firm suggest?
Ends based resolution principal
The ethical decision making process for right vs. wrong issues includes four tests. Asking oneself whether the situation intuitively involves wrongdoing, even if the individual cannot identify exactly what it is, defines which of these four tests?
Smell test.
Which area of the compliance department would be responsible for regulating margin policies?
Which functions are typically handled by the compliance department, rather than being delegated to other areas of the firm?
Internal reporting (e.g., to management and the Board) and External reporting (e.g., on compliance matters to regulatory authorities).
How frequently must the CCO report to the Board of Directors of a dealer member?
As often as necessary, and at least annually.
Which statement best describes the relationship between the CCO and the Ultimate Designated Person (UDP) and the Board of Directors?
The CCO may be the UDP
Which statement regarding the Compliance Governance Document is true?
It must be in writing.
With which party does the ultimate responsibility of the direction of a dealer member’s compliance lie?
The Board of Directors.
Which order best reflects the supervisory line of accountability at a dealer member?
Board of Directors – executive management – line managers.
For what audience is the Annual CCO Report prepared?
The Board of Directors.
Which rule mandates that all pending legal actions be reported to Head Office?
IIROC Rule 2500.
Who are the regulations surrounding anti-money laundering (AML) are aimed at protecting?
Society and the capital markets.
How often does IIROC require statements on accounts, where there is no activity, other than dividends or interest, be sent to clients?
For what period of time must evidence of supervision be retained, according to IIROC Rule 2500?
7 years, including 1 year onsite.
How long after the closing of an account, must the account identity verification be retained?
5 years.
When a client sells equities, when are the shares removed from his or her account?
Trade date plus 3.
The amount of credit a firm may grant a client against a particular security is regulated by SROs, however what do firms have the ability to do?
Maintain margin requirements substantially higher than the rates suggested by regulators.
IIROC produces a quarterly list of securities eligible for reduced margin . In order for a security to be eligible for reduced margin, what requirements must it meet?
High liquidity and low price volatility.
What type of information does the credit department often provide to the compliance department?
A list of undermargined and unsecured accounts above a certain dollar-value threshold.
Capital rules require each dealer member to maintain a minimum amount of insurance coverage to protect their assets against losses arising from fraud , theft or dishonest acts of employees. The minimum prescribes limits can range from:
$200,000 to $25 million.
Which asset, held by a dealer member, would not be considered allowable under the capital formula?
Fixed assets
By what time must the dealer of a prospectus-issued security in Canada mail or deliver the prospectus to the purchaser?
Not later than midnight on the second business day after the trade.
One of the three provisions outlined in an offering memorandum allows an investor to cancel the agreement to buy a fund, for any reason, within two business days of signing the purchase agreement. What is this provision called?
The right of withdrawal
What does IIROC require from dealer members with respect to policies and procedures?
That policies and procedures are in writing
What statement is true regarding the development and amendment of policies and procedures at a dealer member?
Development and amendment of policies and procedures are themselves a matter of policy and procedure.
In the event that policies and procedures are amended, what should be done with the previous set of policies and procedures?
They should be archived
With respect to dissemination, what policy does IIROC require that sales and supervisory personnel have access to?
Current sales practices and policies
What consideration would be important with respect to disseminating policies in a dealer member?
That policies and procedures that pertain to a particular employee are accessible to that employee
While each firm is permitted to design its own compliance and monitoring systems, what minimum criteria is required by the industry?
Account supervision is conducted and evidence of supervision is maintained.
What are the two major types of internal controls?
Preventative and detective
How often must a supervision system be reviewed?
For what period of time must the reviews of the supervision system be kept?
5 years.
Which statement is true regarding a firm‟s grey list?
It is highly confidential
From a regulatory perspective, what is the only significant difference in the monitoring requirements imposed on discount brokers compared with full-service firms?
How are transactions requested by institutional clients treated differently than transactions of retail clients?
It is assumed that institutions are able to independently evaluate investment risk.
IROC Rule 3800 requires that firms maintain an internal record of the names of all Supervisors, the scope of their responsibility, and the dates for which their responsibility and authority was in effect. For how long must the firm maintain these records?
7 years, and on-site for the first year.
What does IIROC Rule 2500 govern?
Record keeping requirements regarding account opening, reviews of account activity and client complaints for retail accounts.
PCMLTFA requires that dealer members retain records in such a way that they can be provided to FINTRAC within what time period?
30 days.
Which of the following is an example of a cash deposit(s) that must be reported by the dealer member to FINTRAC?
Two deposits of $5000 within a 24 hour period
According to PIPEDA, how should information that is no longer required for its original purpose should be treated?
Destroyed, erased or rendered anonymous.
What party is responsible for upholding PIPEDA’s regulations at the member firm?
The Privacy Officer
In addition to knowing where records are located, what other consideration with respect to records are important for firms to establish and document?.
Who is responsible for their maintenance
What category of client complaint would churning belong to?
Regulatory contravention
Upon receiving a client complaint, a dealer member must return a Client Acknowledgement Letter. What length of time does the firm have to send this out, from the receipt of the complaint?
5 business days.
Within 90 days of receiving the initial complaint, a dealer member is required to send the client a Client Substantive Response Letter. What information must this letter contain?
The firm’s final decision on the complaint, including an explanation.
Arbitration is an Alternative Dispute Resolution method that involves and independent arbitrator. If a client decides to select this method of resolution, what condition is applied?
The parties involved in arbitration agree to waive all other rights and remedies and accept the arbitrator’s decision as binding.
The OmbudsNetwork (OBSI) gives Canadian consumers access to independent complaint resolution services involving the banking, insurance, securities and mutual fund industries. What is the maximum dollar value that this network can work with?
If a privilege is claimed in respect to a document, what is this document exempt from?
Inspection or disclosure
What party reserves the right to determine that privilege does not apply?
The court
What can a dealer do to assist in avoiding client complaints?
Provide adequate training to RRs regarding their duties and responsibilities.
What IIROC Rule sets out the requirements regarding internal dealer member investigations?
IIROC Rule 3100.
Under what circumstances will a dealer member conduct an internal investigation?
There appears to be a breach of SRO rules.
How should an internal investigation be carried out?
What document protects employees who assist external investigators investigating capital markets fraud?
The Criminal Code
What is an example of one of the most common causes of an IIROC investigation?
Unsuitable recommendations.
In the event that an external investigation results in finding a registrant guilty, which party will have sanctions imposed on them?
The Registrant and the dealer.
What matter would an investigation by the Montreal Exchange relate to?
When dealing with an external investigation, it is recommended that the following assistance is sought, if required:
Legal advice.
Upon receipt of a search warring from the police, how should a dealer member react immediately?
Contact legal counsel immediately
How many different registration categories are there?
What could be a consequence of failure to meet CE requirements?
The registrant being placed under close supervision.
Which group is responsible for reviewing exemption requests, regarding registration that are submitted to IIROC?
The IIROC District Council in the province in which the applicant works.
What description below best describes the registration responsibilities of the UDP?
The CEO of a dealer member or person in a similar position, approved to have overall responsibility for the dealer member’s compliance with laws and regulations, including IIROC Rules, governing its securities related activities.
In what time period must changes of information regarding a change to an individual’s proficiency requirements be filed with NRD?
1 year.
Within what time period must a dealer report a registrant’s termination to NRD?
5 days
What does the “mobility exemption” permit dealer members to do?
Permits dealer members and RRs to continue to deal with a client who moves to a Canadian jurisdiction in which they are not registered.
The “mobility exemption” under NI 31-103 permits dealer members and RRs to continue to deal with a client who moves to a Canadian jurisdiction in which they are not registere What is the maximum number of clients an RR is entitled to under the “mobility exemption”?
What type of account is a U.S. resident permitted to continue to maintain in Canada?
In the event that a registration decision made by IIROC’s District Council is challenged, what party will review the appeal?
IIROC’s Hearing Panel.
From what two fundamental public policy objectives are securities regulations derived?
Protecting investors from unfair and fraudulent practices, and fostering fair and efficient capital markets
In addition to the relevant technical provisions, what should the CCO consider when evaluating trading issues?
The spirit of the law.
What feature must be in place for any firm that uses algorithmic trading systems?
The ability to disengage the system should the need arise.
What information does IIROC mandate be disclosed on a trade confirmation for a bond (sold OTC)?
The yield to maturity of the bond bought or sold.
Although specific rules depend on markets and types of securities trade, what is always required with respect to trading supervision?
Written policies and procedures
UMIR Rule 6.3 governs order exposure obligations. This rule states that orders under a certain number of standard trading units must be transmitted immediately to the market. What is this number?
What two types of IBs are limited to doing business through only one CB?
Types 1 and 2.
What is the minimum risk-adjusted capital (RAC) requirement for a Type 1 IB?
What party is responsible for client margining under Types 1 and 2?
The carrying broker
Under what type of arrangement is the IB responsible for the segregation of client free credit balances?
Type 4.
What statement is most correct regarding cross-boarder jitney (omnibus) transactions?
The omnibus account records all trading activity on behalf of the serviced broker
exemption in IIROC Rule 35.6 allows CBs to enter into an IB/CB relationship with a foreign affiliate. Under this exemption, what must the foreign affiliate of the CB do?
Assume responsibility for compliance with IIROC Rules.
Under Rule 35, what is the only type of IB that shares equal responsibility for client supervision regarding KYC rules?
Type 1.
Although IIROC Rule 35 states that the IB and CB are jointly responsible for complying with anti-money laundering procedures, what party is generally most responsible?
What is an example of a behavior that demonstrates that staff is embracing continuous improvement?
Question the way things are traditionally done
What must a leader do in order to successfully enable others?
Establish and environment where others are able to do what it takes to be successful.
Which aspect has the greatest influence on believability of a message?
For how long should eye contact be maintained to be considered “natural”, before looking away?
5-15 seconds.