STC Chapter 15
An RR must attempt to obtain all of the following information about customers, EXCEPT:
Their educational background There is no requirement to attempt to obtain a client's educational background.
In which of the following situations must a broker-dealer file a Currency Transaction Report (CTR)?
A customer opens an account with $11,000 in cash Currency Transaction Reports must be filed when a customer deposits a total of more than $10,000 in cash in any one day.
Which of the following statements is TRUE concerning the opening of a cash account?
A principal of the firm must sign the new account form. A principal of the firm must sign the new account form. Although many firms have established internal rules about obtaining a client's signature to open a cash account, it's not a FINRA requirement.
All of the following forms of communication with the public that are used by a member firm fall under the industry definition of retail communication, EXCEPT:
A seminar handout provided to 20 retail investors Any written or electronic communication that is sent by a member firm to 25 or fewer retail investors is considered correspondence. For that reason, the seminar handout provided to 20 retail investors is not considered retail communication; it's considered correspondence. Retail communication is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30-calendar-day period. A retail investor is considered any person who does not meet the definition of an institutional investor. Retail communication is the broadest category of communication and includes both advertising and sales literature. All materials that are prepared for the public media in which the ultimate audience is unknown are considered retail communications including: Television, radio, and billboards Magazines and newspapers Certain websites and online interactive electronic forums, such as chat rooms, blogs, or social networking sites (assuming retail investors have access to these sites) Telemarketing and sales scripts Independently prepared reprints (e.g., newspaper or magazine articles) that are sent to more than 25 retail investors
According to FINRA, which of the following is NOT considered an institutional account?
An account for a person with $2 million of assets An institutional account includes those of banks, savings and loans, insurance companies, registered investment advisers, registered investment companies, or any person with total assets of at least $50 million.
After opening an account with a firm a customer must receive an updated privacy notice:
Annually. According to Regulation SP, a privacy notice must be provided to a customer at the time an account is opened and annually thereafter. If this individual did not have an account with the dealer, he would be defined as a consumer and the privacy notice would have to be provided at the time any non-public (personal) information was disclosed to an unaffiliated third party.
When can broker-dealers make unsolicited telephone calls?
Between 8:00 a.m. and 9:00 p.m. Under the Telephone Consumer Protection Act, solicitors are only permitted to contact consumers between 8:00 a.m. and 9:00 p.m.
When implementing its anti-money laundering (AML) rules, a broker-dealer is required to:
Designate an AML compliance officer Broker-dealers are required to create a written anti-money laundering (AML) program. One element of the AML program is to designate a person to supervise the program. The designated person is responsible for training staff and developing procedures; however, the program (plan) itself is not required to be filed with FINRA.
If a financial institution receives more than $10,000 in cash from one customer during one business day, what action is required?
File a Currency Transaction Report (CTR) A broker-dealer or bank that receives more than $10,000 of cash from one customer during one business day, it must file a Currency Transaction Report (CTR). Although the transaction may be suspicious and require the filing of an SAR, SARs are not filed with the SEC. Both the SAR and CTR are required under the USA PATRIOT Act and are filed with the Financial Crimes Enforcement Network (FinCEN), which is a department of the Treasury. Under the USA PATRIOT Act, there's no requirement to place a five-day hold on the customer's funds. Since the question states that cash is being deposited, not transferred, a cash transfer receipt is not required.
If a client has been with a firm for 15 years and just deposited $14,000 in cash, what's the regulatory requirement?
File a Currency Transaction Report (CTR) The CTR is filed for all cash transactions that are executed by a single customer during one business day and exceed $10,000. There's no exception for existing accounts, regardless of how long the account has been open. SARs are filed if a broker-dealer suspects the client is violating the law. Since the question doesn't indicate for the source of the cash, it's difficult to determine whether it's from illegal or suspicious activity.
The SEC rules regarding the record retention generally require that records be kept in an easily accessible location for the:
First two years The SEC rules regarding record retention generally require that records be kept in an easily accessible location for the first two years. Records must generally be kept in total for either three years, six years, or the life of the firm depending on the specific record.
A broker-dealer is permitted to hold a customer's mail without instructions concerning a valid reason:
For a period not exceeding three consecutive months A broker-dealer may hold mail for a customer who will not be receiving mail at his usual address provided the firm receives written instructions from the customer that include the time-period during which the mail is to be held. If the period exceeds three consecutive months, the customer's instructions must also include a valid reason for the request.
A Suspicious Activity Report should be filed:
For most types of suspicious activity depending on the facts and circumstances A Suspicious Activity Report (SAR) should be filed for most suspicious transactions depending on the facts and circumstances surrounding the transaction.
A broker-dealer's anti-money laundering (AML) compliance program must be approved:
In writing by a member of senior management Each member's AML program must be approved in writing by a member of senior management.
A registered representative is sending an email to five clients. Which of the following statements is TRUE?
It is considered correspondence and subject to review by a principal. It is considered correspondence and subject to review by a principal. Correspondence is defined as any written or electronic message that a member firm distributes or makes available to 25 or fewer retail investors within a 30-calendar-day period. On the other hand, retail communication is defined as any written or electronic communication that a member firm distributes or makes available to more than 25 retail investors within a 30-calendar-day period. A retail investor is considered any person who does not meet the definition of an institutional investor. Retail communications are generally subject to pre-approval; however, correspondence and institutional communications are subject to review and supervision.
Which of the following statements is NOT TRUE about a fidelity bond?
It protects customers in the event their broker-dealer goes bankrupt. A fidelity bond does not protect customers in the event of broker-dealer bankruptcy; that's the role of SIPC. Instead, a fidelity bond is insurance that protects a broker-dealer in case of fraud such as forgery or counterfeit currency. The bond covers securities that are held at the brokerage firm as well as those in transit. FINRA must be notified if the bond is cancelled or substantially modified.
When documenting an investor's profile, which of the following is important?
Liquidity needs Liquidity needs is one of the factors that make up an investor's profile. By itself, marital status is not relevant when making recommendations. An investor's current employment is more important than his employment history. Education is not nearly as important as a client's investing experience.
Which of the following is part of a financial institution's AML program?
Maintaining a record of wire transfers in excess of $3,000 A financial institution's AML program must contain policies, procedures, and internal controls that are designed to comply with the Bank Secrecy Act (BSA). One of the requirements is that broker-dealers must retain records for transmittals (e.g., wires) and transfer of funds in excess of $3,000. If the person making the request is not a customer, the broker-dealer must also verify the person's identity.
A broker-dealer's privacy notice must include all the following information, EXCEPT the:
Names of any other financial institutions with which the firm is affiliated A privacy notice is not required to include the names of any other financial institutions with which the firm is affiliated.
Where is a FINRA member required to place a link for FINRA's BrokerCheck® website?
On the first landing page of the broker-dealer's publicly available website Under FINRA rules, broker-dealers are required to include a hyperlink to BrokerCheck® on the initial webpage that the firm intends to be viewed by retail investors. The link is not required to be on every webpage of the broker-dealer or on pages that are only viewed by instructional investors.
A broker-dealer must file a Currency Transaction Report (CTR) when a customer:
Opens an account with $11,000 in cash CTRs are filed on FinCEN Form 104 when a customer deposits a total amount of more than $10,000 in cash on any one day.
Which of the following regulations protects the confidentiality of the information that broker-dealers collect from their clients?
Regulation SP Regulation SP requires all broker-dealers, investment companies, and investment advisers registered with the SEC to adopt procedures to protect the privacy of confidential information collected from their clients. The Securities Investor Protection Act of 1970 protects customers of failed broker-dealers. The Insider Trading and Securities Fraud Enforcement Act of 1988 established specific penalties for the misuse of material, nonpublic information. Regulation FD addressed the distribution of material, nonpublic information to select individuals, such as research analysts.
Which of the following statements is NOT TRUE?
SEC record retention rules generally require a firm to maintain records in an easily accessible location for the first three years. All of the statements are true except that SEC record retention rules generally require a firm to maintain records in an easily accessible location for the first three years. Instead, a firm is required to maintain records in an easily accessible location for the first two years.
Broker-dealers are required to send balance sheets to customers every:
Six months Broker-dealers are required to send balance sheets to customers every six months and upon request.
A customer has recently closed her account. How long is her broker-dealer required to keep records related to her account?
Six years Although many brokerage records are kept for three years, a broker-dealer is required to keep customer records for six years after an account is closed. Customer complaints must be kept for four years.
A broker-dealer must maintain customer account records for how long after an account is closed?
Six years Records that relate to customer accounts must be maintained for a total of six years after the account is closed. For the first two years, the records must be in an easily accessible location.
Which of the following laws is enforced by FinCEN and protects against financial crimes, including the financing of terrorism and money laundering?
The Bank Secrecy Act In the U.S., the Bank Secrecy Act (BSA) is the primary law that's designed to protect against the abuses of financial crimes. Regulation M was designed to prevent fraud and manipulation of newly issued securities. The Securities Act of 1933 requires registration of newly issued securities. The Investment Advisers Act of 1940 regulates investment advisers and other money managers.
Who must provide written approval before a registered representative (RR) can place a mutual fund advertisement which will be widely disseminated?
The RR's registered principal FINRA considers advertisements to be a form of retail communication. Retail communications are defined as written or electronic communication that's distributed or made available to more than 25 retail investors. Advertisements must be approved by a registered principal of a broker-dealer before they're used. In some cases, retail communication is filed with a regulator; however, an RR is prohibited from indicating that an advertisement has been "approved" by any of the regulators.
The SEC established Regulation S-P to provide for customer privacy. According to Reg. S-P, what information is a broker-dealer required to include in its customer privacy notices?
The broker-dealer's policies that have been created to protect the security of the customer's private information Regulation S-P was enacted to ensure that a customer's non-public information is protected. Broker-dealers are required to establish policies that are designed to protect their client's information. Those policies must be disclosed in a privacy notice and sent to customers. In some cases, broker-dealers are permitted to share a customer's information; however, customers are given the opportunity to opt out and refuse the sharing of information. Broker-dealers cannot charge a customer who wants to opt out.
As it relates to money laundering, which of the following choices best describes structuring?
The client makes small deposits to evade AML reporting thresholds. Structuring occurs when a client attempts to circumvent anti-money laundering (AML) reporting requirements by depositing funds in amounts just below the reporting levels. The goal is to evade detection by engaging in numerous small deposits.
A confirmation must be sent to a customer no later than:
The completion of the trade A broker-dealer must send a confirmation to a customer at or before the completion of the transaction, which is usually the settlement date.
A member firm's business continuity plan (BCP) is designed to address:
The procedures that will be followed in the event of a catastrophe at the firm Business continuity plans consist of written procedures to be followed in the event that the firm is involved in a catastrophe (e.g., earthquakes, floods, fires, terrorism, etc.).
Which of the following statements is TRUE concerning an account statement?
The statement must include a disclosure that clients should promptly notify the broker-dealer if they discover a discrepancy. The statement must include a disclosure that clients should promptly notify the broker-dealer if they discover a discrepancy. Account statements must be sent to clients at least quarterly; however, most firms send monthly statements for active accounts. Statements show transactions for the period, not the entire year. Trade confirmations (not account statements) must be sent at or prior to the settlement of a trade.
Which of the following statements is TRUE concerning member firms' suitability requirements for institutional investors?
The suitability requirements are less stringent than those of retail accounts Institutional investors are subject to FINRA suitability requirements, but they are less stringent than those of retail accounts. There is no special exemption for QIBs. Firms have a suitability obligation to all clients. When determining the suitability obligations of a broker-dealer concerning institutional customers, the two most important considerations are the customer's ability to evaluate the investment risk independently, and the extent to which the customer is exercising that ability in connection with the recommendation.
A broker-dealer's suitability obligation is:
To make sure the recommended security fits the customer investment objectives Broker-dealers have a suitability obligation to all customers. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning his investment profile. This would include the customer's age, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. A broker-dealer may assist a customer in limiting a loss but not guarantee a customer against a loss. Conflicts of interest must be disclosed, but do not need to be avoided. A firm may recommend that a small amount of a customer's portfolio be invested in riskier securities if they fit into an overall investment strategy.
Broker-dealers must provide a privacy notice to every customer:
When the account is opened Broker-dealers, investment companies, and investment advisers must provide a privacy notice to customers when the account is opened. An updated version must be sent to customers annually.
On a confirmation to a customer, a FINRA member must disclose all of the following , EXCEPT:
Whether the broker-dealer is also an investment banker for the issuer of the security The customer confirmation must disclose whether the brokerage firm acted as a principal or agent. If it acted as agent, the amount of the commission must be disclosed. Also, the broker-dealer must disclose or offer to disclose the time that the trade was executed. Whether the broker-dealer is also an investment banker for the issuer of the security is disclosed in a research report, but is not required on a confirmation.