Quality Assurance and Control Flashcards

When assessing the quality of a mutual fund's internal controls, which framework is MOST commonly referenced in Canadian financial services?

Answer: COSO Internal Control Framework

The COSO (Committee of Sponsoring Organizations) Internal Control Framework is the most widely used standard for evaluating internal controls in financial services.

A portfolio manager consistently executes personal trades in securities just before placing the same trades for client accounts. This practice is known as:

Answer: Front-running

Front-running involves trading for personal benefit ahead of client orders, which is a serious violation of fiduciary duty and securities law.

Under CIFC principles, which element is MOST critical when designing a quality control checklist for fund operations?

Answer: Ensuring checks are mapped to specific regulatory requirements

Effective quality control checklists must map each check to specific regulatory requirements to ensure compliance gaps are identifiable.

A mutual fund's management expense ratio (MER) has increased significantly compared to the prior year. Which quality assurance step should be taken FIRST?

Answer: Investigate and document the reasons for the increase

Investigating and documenting the reasons for the MER increase is the first step to determine if the increase is justified or represents a control failure.

Which of the following is a key indicator that a mutual fund's quality assurance program is operating effectively?

Answer: Timely identification and resolution of compliance exceptions

Timely identification and resolution of compliance exceptions demonstrates that the QA program is actively detecting and correcting issues.

Under NI 81-102, what is the maximum percentage of a mutual fund's net assets that can be invested in securities of a single issuer (general rule)?

Answer: 10%

NI 81-102 generally limits a mutual fund's exposure to any single issuer to 10% of net assets to ensure diversification.

A quality assurance review finds that trade confirmations are consistently sent to clients two days after the settlement date. This represents a failure in:

Answer: Operational process timeliness controls

Late trade confirmations indicate a breakdown in operational process controls, which is a key component of fund administration quality assurance.