BMO Compliance & Ethical Standards 3 — Questions and Answers
Question 1: An employee learns through their work role that a public company is about to announce a major acquisition. Trading on this information before the announcement is known as:
- Arbitrage trading
- Insider trading (Correct answer)
- Short selling
- Front running
Correct answer: Insider trading
Insider trading involves buying or selling securities based on material non-public information, which is illegal and a serious ethical violation.
Question 2: Under OSFI guidelines, BMO must maintain a compliance function that is:
- Integrated into the revenue-generating business lines to maximize efficiency
- Independent from the business lines it oversees to avoid conflicts of interest (Correct answer)
- Managed directly by the CEO to ensure top-level accountability
- Outsourced to a third-party firm for objective assessment
Correct answer: Independent from the business lines it oversees to avoid conflicts of interest
OSFI requires that the compliance function maintain independence from the business lines it monitors to ensure objective oversight.
Question 3: A client requests that BMO structure multiple cash deposits just below the $10,000 reporting threshold to avoid regulatory reporting. This practice is called:
- Tax deferral
- Structuring or smurfing (Correct answer)
- Layering
- Integration
Correct answer: Structuring or smurfing
Structuring (or smurfing) is the illegal practice of breaking up transactions to avoid currency transaction reporting thresholds.
Question 4: Which BMO principle requires employees to treat customer information with strict confidentiality, sharing it only on a need-to-know basis?
- Transparency principle
- Privacy and data protection obligations (Correct answer)
- Client-first suitability standard
- Fair dealing obligation
Correct answer: Privacy and data protection obligations
Privacy obligations under PIPEDA and BMO's internal policies require that client information be accessed only by those with a legitimate business need.
Question 5: When must BMO report a large cash transaction (LCT) to FINTRAC?
- When a single cash transaction is $5,000 CAD or more
- When a single cash transaction is $10,000 CAD or more within a 24-hour period (Correct answer)
- When cumulative monthly cash transactions exceed $100,000 CAD
- When any electronic fund transfer exceeds $50,000 CAD
Correct answer: When a single cash transaction is $10,000 CAD or more within a 24-hour period
FINTRAC requires financial institutions to report all cash transactions of $10,000 CAD or more received within a 24-hour period.
Question 6: An employee discovers their manager has approved a loan for a family member without following proper credit review procedures. This is an example of:
- A minor procedural oversight that can be corrected informally
- A nepotism and conflict-of-interest violation requiring escalation (Correct answer)
- An acceptable exception given the manager's authority level
- A training issue that should be resolved through HR coaching
Correct answer: A nepotism and conflict-of-interest violation requiring escalation
Approving loans for family members without proper procedures constitutes both a conflict of interest and a governance failure requiring escalation to compliance.
Question 7: BMO's Fair Treatment of Customers (FTC) framework requires that financial products be sold:
- To maximize revenue for the bank while meeting minimum disclosure standards
- In a manner suitable to the client's needs, risk tolerance, and financial situation (Correct answer)
- Based on the branch's monthly sales targets and product quotas
- Primarily to clients who qualify for the bank's premium tier services
Correct answer: In a manner suitable to the client's needs, risk tolerance, and financial situation
The FTC framework mandates suitability—products must match the client's actual needs, risk profile, and financial circumstances.
BMO Compliance & Ethical Standards 3
An employee learns through their work role that a public company is about to announce a major acquisition.
Trading on this information before the announcement is known as: