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 client who has always been classified as 'growth' oriented suddenly asks to move entirely to GICs after a market downturn. What is the best interpretation of this behaviour for KYC purposes?
Answer: The client's risk tolerance may have changed and the KYC file should be reviewed and updated
Significant changes in client behaviour may indicate a shift in risk tolerance or objectives, and the KYC file should be reviewed and updated to reflect the client's current situation.
Under National Instrument 31-103, what is the 'know your product' obligation and how does it relate to KYC?
Answer: Representatives must understand a product's features and risks to match it to a suitable client profile
Know your product requires representatives to understand each product's features, risks, and costs so they can determine if it is suitable for a specific client's KYC profile.
A 70-year-old retired client with moderate risk tolerance asks to invest a large portion of their savings in a leveraged mutual fund. What is the most critical suitability concern?
Answer: The client's short time horizon and need for capital preservation likely conflict with the high risk of leveraged products
Leveraged funds carry amplified risk and are generally unsuitable for retirees with limited time horizons who depend on capital preservation, regardless of stated moderate risk tolerance.
What is a 'trusted contact person' (TCP) and why was this KYC requirement introduced in Canada?
Answer: A person the firm may contact if there are concerns about the client's financial exploitation or capacity
The TCP requirement was introduced to allow firms to contact a named individual if there are concerns about a client's mental capacity or potential financial exploitation.
When assessing suitability for a mutual fund recommendation, which combination of KYC factors should a representative consider together?
Answer: Risk tolerance, risk capacity, time horizon, investment objectives, and investment knowledge
A complete suitability assessment requires integrating all key KYC factors — no single factor is sufficient on its own.
A representative discovers that a client's KYC form has not been updated in four years despite several life changes. What regulatory risk does this create?
Answer: The firm may face regulatory action for failing to maintain current client information and for unsuitable recommendations made in the interim
Outdated KYC records expose the firm to regulatory sanctions and potential claims of unsuitable recommendations made without current knowledge of the client's situation.
Which of the following scenarios would constitute a 'material change' requiring immediate KYC update rather than waiting for the next annual review?
Answer: A client divorces and loses half their liquid assets in a settlement
Divorce resulting in a substantial loss of assets materially affects the client's net worth, risk capacity, and possibly investment objectives, requiring an immediate update.