Series 24 – General Securities Principal Exam Supervision & Principal Oversight 2 — Questions and Answers
Question 1: When reviewing customer correspondence, a principal finds an email where a rep promises a client guaranteed returns. What action should be taken?
- Archive it for the annual review
- Take no action if returns were delivered
- Correct the communication and address the violation with the rep (Correct answer)
- Forward to marketing for review
Correct answer: Correct the communication and address the violation with the rep
Guaranteeing returns violates FINRA rules; the principal must correct the communication and take disciplinary action with the representative.
Question 2: A branch manager fails to supervise a registered rep who churns customer accounts. Under FINRA rules, the branch manager may be subject to:
- Only a written warning
- Supervisory liability for the violations (Correct answer)
- No liability if unaware of the churning
- Civil liability only if customers complain
Correct answer: Supervisory liability for the violations
Branch managers bear supervisory liability when they fail to reasonably supervise registered representatives, regardless of direct knowledge.
Question 3: Which of the following is NOT a characteristic of an effective supervisory control system under FINRA Rule 3120?
- Annual testing of supervisory procedures
- Identification of supervisory control weaknesses
- Guaranteeing zero customer complaints (Correct answer)
- Senior management report on supervisory controls
Correct answer: Guaranteeing zero customer complaints
No supervisory system can guarantee zero complaints; effective controls focus on testing, identifying weaknesses, and reporting to management.
Question 4: A General Securities Principal is reviewing trading activity and notices a pattern of late-day mutual fund switching. This may indicate:
- Laddering
- Late trading or market timing (Correct answer)
- Front running
- Painting the tape
Correct answer: Late trading or market timing
Late-day mutual fund switching is a hallmark of market timing or late trading, both of which are prohibited practices the principal must investigate.
Question 5: Under FINRA rules, how long must a firm retain records of its supervisory review of customer account activity?
- 1 year
- 2 years
- 3 years (Correct answer)
- 6 years
Correct answer: 3 years
FINRA requires firms to retain records of supervisory reviews for at least three years, with two years in an accessible location.
Question 6: A principal is conducting a heightened supervision plan for a registered rep with a history of customer complaints. This plan should include:
- Automatic termination after 90 days
- Increased review of the rep's activities and regular check-ins (Correct answer)
- Transfer to another branch immediately
- Removal of all customer accounts
Correct answer: Increased review of the rep's activities and regular check-ins
A heightened supervision plan requires enhanced monitoring of the representative's activities, including frequent reviews and check-ins by a supervisor.
Series 24 – General Securities Principal Exam Supervision & Principal Oversight 2
When reviewing customer correspondence, a principal finds an email where a rep promises a client guaranteed returns.
What action should be taken?