IFC The Know Your Client Process 3

Question 1

A new client discloses they are a politically exposed foreign person (PEFP). What additional obligation does this trigger for the dealer?

Accepted Answer

Enhanced due diligence and senior management approval are required

Answer

PEFP status triggers enhanced due diligence requirements and typically requires approval by senior management before opening the account.

Question 2

Which KYC element most directly determines whether a client can financially absorb a potential investment loss?

Accepted Answer

Risk capacity

Answer

Risk capacity measures the client's financial ability to withstand losses, as opposed to risk tolerance which reflects their emotional comfort with risk.

Question 3

A client opens a joint account with their spouse. Whose KYC information must be collected?

Accepted Answer

Both account holders

Answer

KYC information must be collected for all parties on a joint account to properly assess suitability for all account holders.

Question 4

Under the client-focused reforms (CFRs) in Canada, what new obligation was added regarding KYC and conflicts of interest?

Accepted Answer

Firms must prioritize client interests over firm and representative interests

Answer

The CFRs require that registrants prioritize clients' interests, including resolving material conflicts in the client's favour.

Question 5

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?

Accepted Answer

Illiquid assets may not be available to meet investment losses or margin calls

Answer

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.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC The Know Your Client Process 3