Regulatory Compliance & Ethics Flashcards

Under the USA PATRIOT Act, financial institutions must implement a Customer Identification Program (CIP) to verify the identity of customers when:

Answer: Opening a new account for an individual or entity

The CIP requirement under the USA PATRIOT Act is triggered when a new account is opened, requiring identity verification of the customer.

The Employee Retirement Income Security Act (ERISA) imposes which of the following duties on plan fiduciaries?

Answer: Acting solely in the interest of plan participants and beneficiaries

ERISA's duty of loyalty requires fiduciaries to act solely in the interest of plan participants and beneficiaries when managing plan assets.

A financial information professional who discovers an error in a previously distributed research report is ethically obligated to:

Answer: Promptly issue a correction to all recipients of the original report

Ethical standards require prompt, complete correction to all recipients when errors are discovered in distributed research to prevent ongoing harm from inaccurate information.

The SEC's Market Access Rule (Rule 15c3-5) requires broker-dealers to implement risk management controls before providing customers with:

Answer: Direct market access or sponsored access to trade in securities

Rule 15c3-5 requires broker-dealers to establish risk management controls and supervisory procedures for customers who have direct or sponsored access to trading systems.

In the context of financial services ethics, 'window dressing' refers to the practice of:

Answer: Buying high-performing securities at period-end to make a portfolio look better in reports

Window dressing involves purchasing recent high-performers near reporting period-end to make a portfolio appear to have held winning investments, which is a deceptive practice.

The CFA Institute's Code of Ethics requires members to place their clients' interests:

Answer: Ahead of their own personal interests and their employer's interests

The CFA Institute Code of Ethics explicitly requires members to place client interests ahead of both personal interests and employer interests.

An AML compliance officer at a broker-dealer receives a subpoena from law enforcement requesting customer account records. The correct first step is to:

Answer: Contact legal counsel and follow firm procedures before producing any records

Upon receiving a legal subpoena, the compliance officer must immediately consult legal counsel and follow established firm procedures to ensure proper legal handling.