AD BANKER SIE CHAPTER 9
Fraudsters using aggressive sales techniques lure members of the local church into investing in a company that was allegedly developing new technology for the MLB to use in the World Series and falsely promising the investors guaranteed investment returns. The fraudsters take the investor funds for personal use and payments to sales agents that were hired to solicit investors. What is this an example of?
Affinity fraud Affinity fraud is a tool used by criminals to gain the trust of victims by claiming to be members of the same identifiable group, such as a religious affiliation, race, national origin, or profession, or to have similar interests.
The written supervisory procedures (WSP) and the businesses in which a broker-dealer engages, must be reviewed at least:
Annually The WSP and the businesses in which a BD engages must be reviewed at least annually.
A Currency Transaction Report (CTR) must be completed by the financial institution to file reports of deposits, withdrawals, exchanges of currency, or other payments or transfers involving a transaction in cash totaling more than:
$10,000 A Currency Transaction Report (CTR) must be completed by the financial institution to file reports of deposits, withdrawals, exchanges of currency, or other payments or transfers involving a transaction in cash totaling more than $10,000. A CTR includes the identity of the person(s) involved in the transactions, including the Social Security number, date of birth, address, and other described methods of individual identification, the identity of the individual conducting the transactions (if different than the person involved in the transaction), the amount and type of transaction(s), and the financial institution where the transaction(s) takes place. The report must be filed within 15 days.
How many days does a firm have to provide a retail customer a Form CRS upon request?
30 Days Existing retail customers opening new accounts must receive Form CRS prior to the new account opening. Firms must update their form CRS with the SEC within 30 days of the event causing a material change. Customers must receive the updated Form CRS within 60 days. Firms must deliver Form CRS to a retail customer within 30 days of a request. The recordkeeping requirement for Form CRS is 6 years from date of last use for broker-dealers and 5 years for investment advisers.
Under the Bank Secrecy Act (BSA), a monetary instrument log is required to be maintained at the financial institution for how many years?
5 years A monetary instrument log is required of cash purchases of monetary instruments, such as money orders, cashier's checks, and traveler's checks, totaling between $3,000 and $10,000. This form is required to be kept on record at the financial institution for 5 years and produced at the request of examiners or auditors to verify compliance.
Of the following, which would FINRA consider a complaint?
A customer's lawyer writes a letter to a registered rep of the firm, complaining about his inappropriate recommendations to the customer To be considered a complaint by FINRA, the communication must be written, must be by or on behalf of a member's customer, and must be about an event or individual under control of the member. In the customer's written letter about their investment adviser, they are referring to an adviser, rather than a broker-dealer. This means that the complaint has nothing to do with the firm that received it and does not qualify as a complaint.
Who of the following need not be fingerprinted and have their criminal background checked?
A receptionist whose sole responsibility is greeting customers and routing incoming phone calls The receptionist would be exempt from fingerprinting and a criminal background check. The other three would not be exempt because they are: engaged in sales of securities; or either have access to or supervise the handling of securities, money, or original books and records related to securities or money.
Which of the following does not apply to FINRA rules regarding retail communications?
An officer of a member sends a communication to all local broker-dealers FINRA's rules apply to all forms of retail communication. Communications sent to broker-dealers are institutional communications and would not apply.
When must broker-dealers deliver the customer relationship summary form to retail customers?
At the time of making a recommendation of an account type, securities transaction, or an investment strategy involving securities Broker-dealers must deliver the customer relationship summary form (Form CRS) to retail customers at the time of making a recommendation of an account type, securities transaction, or an investment strategy involving securities. The document must be delivered before placing an order or opening an account for a retail customer.
A customer has an account with a broker-dealer that becomes insolvent. The customer has securities valued at $500,000 and cash of $250,000 on deposit with the firm. The customer would:
Become a general creditor of the broker-dealer for any portion not covered by SIPC SIPC insures each customer for a total of $500,000, of which no more than $250,000 may be for cash. The customer then becomes a general creditor of the broker-dealer for any amount not reimbursed by SIPC ($250,000 worth of securities, in this case).
Which of the following is not defined as advertising?
Brochures A letter or email sent to one individual is considered correspondence and is subject to spot checks according to house rules. Research reports and brochures are considered sales literature and must be approved by a principal prior to distribution. Form letters or group emails might be classified as either correspondence, institutional sales material, or sales literature, depending on the recipients. TV or radio broadcasts, and internet sites are considered advertising under FINRA rules. Advertisements are a form of retail communication where there is no control over who receives the material. Sales literature is also classified as retail communication, but the recipients are known and targeted. Although advertisements are also subject to principal approval prior to use, they may also be subject to filing with FINRA.
Broker-dealers must provide customers with all the following information at account opening, and at least once per calendar year, except:
BrokerCheck website address Broker-dealers must supply customers with the following information at account opening and least once per calendar year: FINRA's BrokerCheck hotline number; FINRA's website address; and a statement regarding the availability of an investor brochure that includes information describing FINRA's BrokerCheck. There is no website address for BrokerCheck, instead BrokerCheck can be accessed through the FINRA website.
A registered representative has a client that wishes to give a $500 cash bonus as a thank you for doing such a good job. The representative:
Cannot accept the money Broker-dealers and RRs are not permitted to give or receive gifts in excess of $100 per person per year if the gift is given in relation to the business of that person's employer. The rule also requires members to keep records regarding gifts and gratuities. This gift exceeds that amount, it cannot be accepted under any circumstances.
Which of the following is required to be maintained for 6 years?
Customer account records The record retention periods are as follows: -- Correspondence and communications including: e-mails, instant messages, and records of gifts are kept for 3 years -- Customer complaints are kept for 4 years -- CTR & SAR reports are kept for 5 years -- Customer account records, blotters, municipal complaints, POAs are kept for 6 years -- Articles of incorporation/partnership agreement, board meeting minutes, stock certificate books are kept for the life of the enterprise plus 3 years after the enterprise ceases to exist
A photocopy of a mutual fund magazine advertisement was used in a sales presentation for a mutual fund along with a prospectus. The article:
Does not need to be filed with FINRA Reprints must be approved by a principal of the broker-dealer, but since they have been filed previously with FINRA, filing now is not required. The fund already had it approved by FINRA.
Which of the following is not considered retail communications?
Email sent to 25 prospects A letter or email sent to 25 prospects is considered correspondence by FINRA rules and is subject to spot checks according to house rules. Form letters or group emails to 25 or fewer prospects are correspondence, but otherwise they are considered retail communications. Reprints sent to more than 25 people are considered retail communication. Retail communications pertaining to investment companies are subject to FINRA filing requirements, while correspondence is not. The radio broadcast would be considered an advertisement. According to FINRA rules, sales literature and advertising are considered retail communications.
Which of the following is true regarding FINRA's jurisdiction over an RR whose registration has been terminated?
FINRA has jurisdiction for 2 years after a person's registration has been terminated FINRA retains jurisdiction over a former RR for up to 2 years after that person's registration was terminated.
A registered representative has a retail customer who opened an individual account many years ago. The customer now wants to open a new joint account. What does Regulation BI require?
Form CRS provided to the clients prior to opening the new account Existing retail customers opening new accounts must receive Form CRS prior to the new account opening. Firms must update their form CRS with the SEC within 30 days of the event causing a material change. Customers must receive the updated Form CRS within 60 days. Firms must deliver Form CRS to a retail customer within 30 days of a request. The recordkeeping requirement for Form CRS is 6 years from date of last use for broker-dealers and 5 years for investment advisers.
Which of the following is not true regarding the predispute arbitration clause signed by associated persons of member firms?
It includes a reference to the location(s) where an associated person may obtain instructions on appealing the decision of a FINRA arbitration panel The Form U4 filed by each applicant for registration as an associated person of a member firm includes a predispute arbitration clause. By signing the U4, the applicant is agreeing to arbitrate, rather than litigate, in almost all disputes between the individual and their member firm. FINRA requires that member firms provide written disclosures about this clause and its provisions to each applicant at or before the time they submit their U4. Among other disclosures, the member firm must disclose that associated persons are not bound to arbitration for disputes involving discrimination or sexual harassment. The decisions of FINRA arbitration panels are considered final and binding; there are no appeals.
What is placement when dealing with money laundering?
Introducing funds to be laundered into the legitimate financial system Money laundering involves 3 independent, and often simultaneous, steps: -- Placement - Introducing funds to be laundered into the legitimate financial system -- Layering - Separating the proceeds of criminal activity from their origins through layers of complex financial transactions to hide the source of the funds -- Integration - Reintroducing the now clean funds back into the financial system by providing an apparently legitimate explanation for the illicit proceeds
Which of the following statements regarding SIPC is false?
Investment advisers must disclose at every location that they are members Investment advisers are not required to join SIPC. Broker-dealers must disclose at every location that they are SIPC members. The other statements are true.
The 5% Markup Policy applies to:
Markups, markdowns, and commissions charged by broker-dealers acting in a principal or agency capacity FINRA and SEC regulations state that commissions and fees charged to customers must be reasonable. FINRA developed the 5% Markup Policy. This policy applies to markups, markdowns and commissions and applies to broker-dealers acting in a principal or agency capacity. This is only a guideline, and it may be necessary and justified to charge higher amounts in certain circumstances or 5% may be too high in other circumstances. In most situations, investors should not be charged more than 5% for buying or selling a security. There are several specific occasions that FINRA recognizes as ones that the 5% Policy may not apply. Those include securities that are difficult to locate, very low-priced securities, small dollar transactions, and the offer of additional services in connection with doing business. In these cases, higher charges may be justified. Securities that require the delivery of a prospectus or offering document are exempt from this policy. Those would include IPOs, municipal bonds, and mutual funds.
Under the Customer Identification Program (CIP) financial institutions must do all the following except:
Obtain all non-U.S. customer fingerprints Proper AML procedures include following the guidelines of the Customer Identification Program whereas financial institutions are required to implement procedures to verify the identity of each customer opening an account, maintain records used to identify the customer, and consult government-provided lists of known or suspected terrorists. Through the CIP, customer verification of name, date of birth, physical address, and tax ID number will all be accomplished. Non-U.S. citizens must provide a passport and U.S. tax identification number to open an account.
When reviewing registration forms (U4), the supervising principal must verify:
Prior 3 years of employment history In reviewing the registration forms (U4), the principal must investigate the good character, business reputation, and experience of every applicant. The supervising principal must review, sign, and date all new hire registration forms (U4) and must verify the prior 3 years of employment history.
Form CRS was created under Regulation Best Interest. The use of the form is mandated for all new customer relationships. In what format must the mandated categories be presented?
Question and answer format Form CRS, which is a form that briefly describes the firm's relationship with their clients, must be delivered to each retail customer and filed with the SEC. Firms that are registered as both broker-dealers and investment advisers are encouraged to create separate forms that pertain to their relationships under each entity. Firms must provide the information in a specific order using specific headings for each category, which are in question and answer format. The first category on the form is relationships and services. The specific heading for the category is: "What investment services and advice can you provide me?".
Which of the following statements is correct concerning FINRA rules regarding outside employment by registered representatives?
RRs must notify their employing firms of any outside employment RRs are required to notify their employers of any outside employment whether securities related or not. Volunteer activities are not subject to this rule. Whether or not the RR may have an outside job is dependent on the individual firm's "house" rules.
After spending 40 minutes on the phone listening intently to an RR from ABC Investments try to pitch a sale, the prospect decided not to do business with this firm and asked to be placed on their "do-not-call" list. Based on this request, ABC Investments must:
Record the request to be placed on the do-not-call list immediately and honor the request before 30 days elapse from the time of the request If a person requests not to receive calls from a member firm, the firm must record the request and place the person's name and telephone number on the firm's do-not-call list at the time the request is made. Members must honor a person's do-not-call request within a reasonable time not to exceed 30 days from the date of such request.
All transactions by a registered rep for the account of a client must be:
Reviewed and endorsed by a principal or designated supervisor Being authorized by the client in writing pertains to discretionary trades. Each customer trade is not directly reviewed by FINRA. The client may have a margin account, in which each trade is not 'cash only.'
A large producer with SDM Investments sold over $9 million of the ABC family of funds in the first 10 months of the year. ABC's regional distributor tells this producer that if they hit the $10 million mark, they will personally send them on an all-expenses paid trip to Rome. According to FINRA rules, which of the following is correct?
The RR may not accept this offer because it is in violation of FINRA rules RRs are prohibited from accepting special deals from a distributor. Any payments made to a RR must be disclosed in the prospectus.
Regulation Best Interest (BI) was created by:
The SEC To bring more transparency to investors regarding their relationships with broker-dealers and investment advisers, the SEC created Regulation Best Interest (BI) and mandated the use of the Customer Relationship Summary Form (Form CRS). Regulation BI established new standards for investment firms when dealing with retail customers. The goal was to increase transparency when recommending an investment or investment strategy.
Which of the following is not included in a Currency Transaction Report (CTR)?
The income of the person involved in the transaction The Currency Transaction Report includes the identity of the person(s) involved in the transactions, including the Social Security number, date of birth, address, and other described methods of individual identification, the identity of the individual conducting the transactions (if different than the person involved in the transaction), the amount and type of transaction(s), and the financial institution where the transaction(s) takes place. There is no requirement to notate the income of the person involved in the transaction.
An RR with ABC Investments, has just closed on a large order for the XYZ New Opportunities Fund. The fund's distributor offers to take the RR out for dinner at an exclusive restaurant overlooking the inner harbor. A night out at this exclusive establishment could easily cost hundreds of dollars and the RR is concerned with violating FINRA's gift rule. Which of the following statements concerning this offer are correct?
This arrangement would be acceptable because legitimate business entertainment expenses are not subject to the $100 limit Reasonable business expenses, including an expensive dinner, are not subject to the $100 gift limitation.
What is the purpose of the USA PATRIOT Act?
To detect, prevent, and prosecute international money laundering and the financing of terrorism The USA PATRIOT Act makes it easier to detect, prevent, and prosecute international money laundering and the financing of terrorism by requiring that broker-dealers (and every financial institution) establish an anti-money laundering program that includes, at a minimum, the development of internal policies, procedures, and controls, anti-money laundering compliance programs to be supervised by a designated compliance officer, ongoing employee training programs, and annual independent audit testing for compliance to be conducted by member personnel or by a qualified outside party.
