CIFC Regulatory Framework and Compliance 3 — Questions and Answers
Question 1: Which provincial securities regulators formed the Canadian Securities Administrators (CSA)?
- Only Ontario, Quebec, and British Columbia
- All provincial and territorial securities regulators (Correct answer)
- Only the four largest provinces by population
- Federal and provincial regulators jointly
Correct answer: All provincial and territorial securities regulators
The CSA is an umbrella organization comprising all 13 provincial and territorial securities regulators that coordinates and harmonizes Canadian securities regulation.
Question 2: Under the Client Relationship Model (CRM2) rules, dealers must provide clients with an annual report that shows:
- The fund manager's personal investment portfolio
- The total compensation paid to the dealer and the client's investment performance (Correct answer)
- Provincial tax withholding amounts
- The fund's benchmark comparison only
Correct answer: The total compensation paid to the dealer and the client's investment performance
CRM2 requires annual reports showing the total costs paid by the client (charges and compensation) and the investment performance of their account.
Question 3: What registration category is required for an individual who sells mutual funds in Canada?
- Portfolio Manager
- Investment Dealer Representative
- Mutual Fund Dealing Representative (Correct answer)
- Exempt Market Dealer
Correct answer: Mutual Fund Dealing Representative
Individuals who sell mutual funds must be registered as Mutual Fund Dealing Representatives under the applicable provincial securities legislation.
Question 4: Under NI 81-102, how frequently must a mutual fund's net asset value (NAV) be calculated at minimum?
- Annually
- Monthly
- Weekly
- Daily on each business day (Correct answer)
Correct answer: Daily on each business day
NI 81-102 requires mutual funds to calculate their NAV on each business day the fund is open for purchases or redemptions.
Question 5: A dealer's compliance department discovers that a registered representative has been 'churning' a client's account. What does this mean?
- The rep has been investing the client's funds in high-yield bonds
- The rep has been excessively trading to generate commissions rather than to benefit the client (Correct answer)
- The rep has been moving client funds between proprietary products
- The rep has been issuing unauthorized margin calls
Correct answer: The rep has been excessively trading to generate commissions rather than to benefit the client
Churning refers to excessive trading in a client's account primarily to generate commissions for the representative, rather than to serve the client's investment objectives.
Question 6: What is the purpose of a Large Cash Transaction Report (LCTR) under FINTRAC regulations?
- To report all investment transactions over $10,000
- To report cash transactions of $10,000 or more received in a single transaction (Correct answer)
- To report wire transfers exceeding $50,000
- To report foreign currency exchanges above $5,000
Correct answer: To report cash transactions of $10,000 or more received in a single transaction
LCTRs must be filed with FINTRAC for any single cash transaction of $10,000 CAD or more, regardless of whether the transaction appears suspicious.
Question 7: Which of the following best describes the role of a fund's custodian under Canadian mutual fund regulations?
- To manage the day-to-day investment decisions of the fund
- To hold and safeguard the fund's assets separately from the fund manager (Correct answer)
- To market and distribute the fund to retail investors
- To audit the fund's financial statements annually
Correct answer: To hold and safeguard the fund's assets separately from the fund manager
A custodian is an independent institution (typically a trust company or bank) that physically holds the fund's assets to protect them from misuse by the fund manager.
CIFC Regulatory Framework and Compliance 3
Which provincial securities regulators formed the Canadian Securities Administrators (CSA)?