Professional Ethics and Standards Flashcards

Under Canada's anti-money laundering (AML) framework, what is a Politically Exposed Person (PEP)?

Answer: An individual who holds or has held a prominent public function domestically or internationally

PEPs are individuals in senior public positions and their close associates, who pose elevated money laundering risk due to their access to public funds.

What is the significance of the 'best interest' standard introduced under Client Focused Reforms (CFRs) in Canada?

Answer: It elevates the standard so that registrants must prioritize client interests over their own or their firm's interests

CFRs require registrants to put client interests first, directly addressing conflicts of interest that could compromise recommendations.

A representative's firm offers a higher payout on proprietary funds than on third-party funds. This situation creates what type of concern?

Answer: A material conflict of interest that must be identified, disclosed, and managed

Compensation structures that favor certain products create material conflicts of interest that must be disclosed to clients so they can make informed decisions.

Which of the following is a key requirement of the 'relationship disclosure' document provided to clients?

Answer: It must describe the nature of the relationship, services offered, fees, and how conflicts of interest are managed

Relationship disclosure documents inform clients about the services they will receive, applicable fees, and how the representative manages conflicts of interest.

Under FINTRAC regulations, when must a mutual fund dealer file a Suspicious Transaction Report (STR)?

Answer: When there are reasonable grounds to suspect a transaction is related to money laundering or terrorist financing

An STR must be filed when there are reasonable grounds to suspect a link to money laundering or terrorist financing, regardless of transaction size.

What is the primary purpose of a mutual fund's Fund Facts document from an ethical standpoint?

Answer: To provide clients with plain-language disclosure of key fund information to support informed decision-making

Fund Facts ensures investors receive clear, accessible information about risks, costs, and past performance before purchasing, supporting informed consent.

What does 'tied selling' mean in the context of financial services regulation in Canada?

Answer: Coercing a client to purchase one product as a condition of receiving another product or service

Tied selling is prohibited because it coerces clients and removes their free choice, which is contrary to both banking regulations and ethical standards.