IAR Laws, Regulations & Guidelines

Question 1

What does the SEC regulate?

Accepted Answer

Securities markets

Answer

The Securities and Exchange Commission (SEC) is a U.S. government agency responsible for protecting investors, maintaining fair and orderly functioning of securities markets, and facilitating capital formation. It regulates various entities within the securities industry, including stock exchanges, brokerage firms, mutual funds, and investment advisers, to ensure transparency and prevent fraud.

Question 2

What is insider trading?

Accepted Answer

Trading on non-public info

Answer

Insider trading refers to the illegal practice of buying or selling a public company's stock while in possession of material, non-public information about that stock. This information, if made public, would likely affect the stock's price. Such trading is illegal because it gives an unfair advantage to the insider over other investors, undermining the fairness and integrity of the securities markets.

Question 3

What law governs investment advisers?

Accepted Answer

Investment Advisers Act of 1940

Answer

The Investment Advisers Act of 1940 is a federal law that regulates investment advisers. It establishes a fiduciary standard for advisers, requiring them to act in the best interest of their clients. The Act mandates registration with the SEC for larger advisers and sets forth requirements regarding disclosure, record-keeping, and advertising practices.

Question 4

What is a fiduciary duty?

Accepted Answer

Best interest of client

Answer

A fiduciary duty is a legal and ethical obligation to act solely in the best interest of another party. For investment advisers, this means prioritizing the client's financial well-being above their own or their firm's interests. This duty requires advisers to provide unbiased advice, disclose conflicts of interest, and recommend suitable investments.

Question 5

Who enforces anti-money laundering laws?

Accepted Answer

FINCEN and SEC

Answer

The Financial Crimes Enforcement Network (FINCEN) is a bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions to combat money laundering and terrorist financing. The SEC also plays a crucial role in enforcing anti-money laundering (AML) laws within the securities industry, requiring firms to establish robust AML programs to detect and report suspicious activities.

IAR Practice Test

IAR Practice Test

IAR Laws, Regulations & Guidelines