Regulatory Compliance & Ethics Flashcards

Under the Investment Advisers Act of 1940, an investment adviser owes a fiduciary duty that includes:

Answer: Disclosing all material conflicts of interest to clients

Investment advisers owe a fiduciary duty requiring full disclosure of all material conflicts of interest that could affect the advice given to clients.

A 'material non-public information' (MNPI) policy at a financial firm primarily aims to prevent:

Answer: Trading on information not available to the general public that could affect securities prices

MNPI policies are designed to prevent insider trading by prohibiting trades based on information not yet available to the investing public that is likely to affect a security's price.

The Dodd-Frank Act's whistleblower program, administered by the SEC, incentivizes individuals to report securities violations by offering:

Answer: Monetary awards between 10% and 30% of sanctions exceeding $1 million

The SEC's whistleblower program offers awards of 10% to 30% of monetary sanctions collected when sanctions exceed $1 million.

Under FINRA Rule 3110, member firms are required to establish and maintain a supervisory system that includes:

Answer: Written supervisory procedures (WSPs) reasonably designed to achieve compliance

FINRA Rule 3110 requires firms to establish WSPs tailored to their business that are reasonably designed to ensure compliance with applicable laws and regulations.

The term 'suitability' in the context of FINRA Rule 2111 requires a broker-dealer to have a reasonable basis to believe that a recommendation is suitable based on all EXCEPT:

Answer: The current market performance of the recommended security

Suitability under Rule 2111 is based on customer-specific factors like financial situation, risk tolerance, and objectives, not on the current market performance of the security.

A Suspicious Activity Report (SAR) filed under the Bank Secrecy Act must generally be submitted within how many days of detecting the suspicious activity?

Answer: 30 days

Financial institutions are generally required to file a SAR within 30 days of detecting a suspicious transaction, or 60 days if additional investigation is needed.

Which of the following actions would most likely constitute a violation of Regulation FD (Fair Disclosure)?

Answer: A CEO privately discloses next quarter's revenue projections to a select group of analysts before public announcement

Regulation FD prohibits selective disclosure of material nonpublic information to certain market professionals without simultaneous public disclosure.