Ethics & Professional Responsibilities Flashcards
7 cards from real CSCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics & Professional Responsibilities flashcards as text
A compliance officer who suspects ongoing securities fraud within their firm but fails to escalate the matter to senior leadership or regulators may be found liable under the theory of:
Answer: Aiding and abetting or supervisory liability for failing to prevent or stop the violation
Compliance professionals with supervisory responsibilities can face liability for failing to take reasonable steps to detect and prevent violations they are aware of or should have been aware of.
A broker-dealer's written supervisory procedures (WSPs) are BEST described as:
Answer: Internal controls that describe how the firm will supervise registered persons and ensure compliance with applicable rules
WSPs are the firm's documented framework for supervising registered persons and activities, and are a core regulatory requirement under FINRA Rule 3110.
An analyst at a sell-side firm owns shares in a company they cover. They are about to publish a favorable research report. Under ethical standards, the analyst must:
Answer: Disclose the ownership interest prominently in the research report
Disclosure of the analyst's ownership interest in covered securities is required so that readers can assess potential conflicts of interest in the research.
The 'three lines of defense' model in compliance assigns which role to the compliance function?
Answer: Second line: providing oversight, monitoring, and guidance on risk and compliance matters
In the three lines of defense model, compliance functions as the second line by providing independent oversight, policy guidance, and monitoring of the first line (business operations).
A securities professional who makes materially false statements to an auditor during a regulatory examination could face charges under which statute?
Answer: Section 1001 of Title 18 (false statements to federal investigators) and potentially Section 1512 (obstruction)
Making false statements to federal investigators is a criminal offense under 18 U.S.C. § 1001, and obstruction of a federal proceeding is prohibited under § 1512, both of which can apply during regulatory examinations.
Which of the following is the most important characteristic of an effective ethics hotline in a securities firm?
Answer: It must allow for anonymous reporting and protect reporters from retaliation
An effective ethics hotline must allow anonymous submissions and provide robust non-retaliation protections to encourage employees to report misconduct without fear.
A compliance professional who intentionally helps structure client transactions to avoid Currency Transaction Report (CTR) filing requirements may be charged with:
Answer: Structuring, a federal crime under the Bank Secrecy Act regardless of the underlying funds' legitimacy
Structuring transactions to evade CTR filing thresholds is a federal crime under 31 U.S.C. § 5324 even if the underlying money is legitimate.