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Investment Compliance Test Flashcards

6 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Investment Compliance Test flashcards as text

  1. Under the SEC's Regulation Best Interest (Reg BI), broker-dealers must act in whose best interest when making recommendations?

    Answer: The retail customer's best interest at the time the recommendation is made

    Reg BI requires broker-dealers to act in the best interest of retail customers when making security recommendations, not merely recommend 'suitable' products.

  2. What is the primary purpose of the Bank Secrecy Act (BSA) in the investment industry?

    Answer: To require financial institutions to assist government agencies in detecting and preventing money laundering

    The Bank Secrecy Act requires financial institutions to maintain records and file reports that help identify, detect, and deter money laundering and other financial crimes.

  3. What is 'insider trading' under US securities law?

    Answer: Trading securities based on material, non-public information in breach of a duty

    Insider trading is the illegal practice of trading securities based on material information that is not publicly available and was obtained through a breach of fiduciary duty or similar relationship of trust.

  4. What is a 'Chinese Wall' (information barrier) in financial services compliance?

    Answer: Policies and procedures designed to prevent the flow of material non-public information between departments

    A Chinese Wall is a compliance structure with information barriers between departments (e.g., investment banking and equity research) to prevent insider trading and conflicts of interest.

  5. Which rule requires investment advisers to adopt a code of ethics that sets standards of conduct and requires reporting of personal securities transactions?

    Answer: SEC Rule 206(4)-7

    SEC Rule 206(4)-7 (the Compliance Rule) requires registered investment advisers to adopt and implement written compliance policies, including a code of ethics governing personal securities trading.

  6. What does AML (Anti-Money Laundering) compliance require investment firms to implement?

    Answer: Customer identification programs, transaction monitoring, and suspicious activity reporting

    AML compliance requires investment firms to implement Customer Identification Programs (CIP), monitor transactions for suspicious activity, and file Suspicious Activity Reports (SARs) with FinCEN.