CSCP Compliance Programs & Risk Management 4

Question 1

An investment adviser's compliance program must be 'reasonably designed' under Rule 206(4)-7. Which factor is least relevant in assessing this standard?

Accepted Answer

Number of compliance staff employed by competitors

Answer

Nature and complexity of the adviser's business

Answer

Adviser's assets under management

Answer

Types of clients served

Question 2

Which of the following is an example of 'inherent risk' in a compliance risk assessment for a broker-dealer?

Accepted Answer

The risk of market manipulation on a proprietary trading desk before any supervisory controls are applied

Answer

The residual exposure after applying controls to high-volume trading desks

Answer

A gap identified in the firm's WSPs during an annual review

Answer

A FINRA inquiry letter received about a specific transaction

Question 3

Under SEC Regulation S-P, broker-dealers and investment advisers must provide customers with a privacy notice at what frequency at minimum?

Accepted Answer

Annually

Answer

Monthly

Answer

Quarterly

Answer

Only at account opening

Question 4

A firm's compliance testing program reveals that 15% of sampled customer accounts lack required know-your-customer (KYC) documentation. The compliance officer should FIRST:

Accepted Answer

Conduct a root cause analysis to understand why documentation is missing

Answer

Self-report the finding to FINRA immediately

Answer

Place trading holds on all 15% of affected accounts

Answer

Terminate the registered representatives responsible

Question 5

Which of the following best describes the purpose of a compliance 'look-back review'?

Accepted Answer

Reviewing past transactions or activities to detect violations that may have occurred

Answer

Projecting future compliance resource needs based on historical data

Answer

Evaluating employee performance against compliance metrics

Answer

Assessing a prospective hire's regulatory history

Question 6

FINRA's suitability rule (Rule 2111) was largely superseded by Regulation Best Interest (Reg BI) for recommendations to retail customers. Reg BI imposes which standard on broker-dealers?

Accepted Answer

Best interest standard that considers costs and reasonably available alternatives

Answer

Fiduciary duty identical to that of investment advisers

Answer

Suitability standard focused solely on client risk tolerance

Answer

Know-your-customer standard limited to investment objectives

Question 7

Which component of an effective compliance program ensures that employees understand their obligations under firm policies and regulations?

Accepted Answer

Ongoing training and education program

Answer

Compensation structure tied to compliance metrics

Answer

Third-party vendor due diligence process

Answer

Annual financial audit by external accountants