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

The reasonably designed standard is assessed based on the firm's own characteristics — its business model, AUM, client types, and conflicts — not benchmarked against competitors' staffing levels.

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

Inherent risk is the raw level of risk in an activity or process before any mitigating controls are applied; market manipulation risk on a proprietary desk absent any supervision is a classic example.

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

Regulation S-P requires covered firms to provide customers with an annual privacy notice describing the firm's information-sharing practices and customers' opt-out rights.

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

Root cause analysis should come first to understand whether the gap is due to process failure, technology error, or training deficiency — this informs the most effective corrective action.

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

A look-back review examines historical transactions, communications, or activities to identify potential violations or suspicious patterns that were not caught at the time they occurred.

(CSCP) Certified Securities Compliance Professional Practice Test

(CSCP) Certified Securities Compliance Professional Practice Test

CSCP Compliance Programs & Risk Management 4