Quality Assurance and Control Flashcards

In mutual fund quality assurance, 'segregation of duties' PRIMARILY means:

Answer: Ensuring no single employee controls all steps of a critical process

Segregation of duties ensures that no single individual can execute, record, and authorize a transaction, reducing the risk of fraud or error.

A fund company's KYC (Know Your Client) update process has not been performed for 40% of client accounts in over three years. This is PRIMARILY a failure of:

Answer: Ongoing suitability and compliance controls

KYC updates are a regulatory requirement to ensure ongoing suitability; failure to update represents a breakdown in compliance controls.

Which of the following BEST describes a 'material compliance issue' under CIFC standards?

Answer: A violation likely to have a significant impact on clients or the firm's regulatory standing

A material compliance issue is one that is significant enough to potentially harm clients or damage the firm's regulatory standing, requiring escalation.

Under MFDA rules, registered mutual fund dealers are required to maintain client account records for a minimum of:

Answer: 7 years

MFDA rules require registered dealers to retain client account records for a minimum of seven years to support regulatory review and dispute resolution.

A fund manager uses a quantitative model to screen securities. The model has a coding error that has been present for six months. This BEST illustrates a failure in:

Answer: Model validation and ongoing testing controls

Model validation controls require that quantitative tools be regularly tested and validated to detect errors before they affect investment decisions.

Which scenario BEST demonstrates an effective 'four-eyes principle' in fund operations?

Answer: Two authorized individuals must independently approve large wire transfers

The four-eyes principle requires two independent persons to review and approve significant transactions, reducing the risk of error or fraud.

Under Canadian regulations, when a mutual fund's investment strategy materially changes, unitholders must generally be provided with:

Answer: 60 days' written notice before the change takes effect

Material changes to a fund's investment strategy require 60 days' written notice to unitholders, giving them the opportunity to redeem before the change.