The Know Your Client Process Flashcards
7 cards from real IFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 The Know Your Client Process flashcards as text
A new client discloses they are a politically exposed foreign person (PEFP). What additional obligation does this trigger for the dealer?
Answer: Enhanced due diligence and senior management approval are required
PEFP status triggers enhanced due diligence requirements and typically requires approval by senior management before opening the account.
Which KYC element most directly determines whether a client can financially absorb a potential investment loss?
Answer: Risk capacity
Risk capacity measures the client's financial ability to withstand losses, as opposed to risk tolerance which reflects their emotional comfort with risk.
A client opens a joint account with their spouse. Whose KYC information must be collected?
Answer: Both account holders
KYC information must be collected for all parties on a joint account to properly assess suitability for all account holders.
Under the client-focused reforms (CFRs) in Canada, what new obligation was added regarding KYC and conflicts of interest?
Answer: Firms must prioritize client interests over firm and representative interests
The CFRs require that registrants prioritize clients' interests, including resolving material conflicts in the client's favour.
A client's net worth is $500,000, but $450,000 is tied up in their primary residence. Why is this distinction important for KYC purposes?
Answer: Illiquid assets may not be available to meet investment losses or margin calls
Illiquid assets like a primary residence cannot be easily converted to cash, so a client's effective investable assets and risk capacity may be much lower than total net worth suggests.
What is the purpose of collecting information about a client's 'investment objectives' during KYC?
Answer: To ensure recommendations align with what the client wants to achieve financially
Investment objectives capture what the client is trying to accomplish (e.g., growth, income, capital preservation), enabling the representative to recommend suitable products.
Which document typically serves as the primary record of KYC information collected at account opening?
Answer: The new account application form (NAAF)
The New Account Application Form is the standard document used to record all required KYC information when a new account is opened.