Series 99 Operational Risk & Controls 4

Question 1

A broker-dealer's net capital drops to 120% of its minimum required level. Under SEC Rule 15c3-1, the firm must:

Accepted Answer

Notify FINRA and the SEC and may be restricted from expanding its business

Answer

When net capital falls to early warning levels (typically 120% of minimum), the firm must give immediate notice to regulators and faces operational restrictions.

Question 2

Which of the following is an example of a 'process failure' operational risk event?

Accepted Answer

Failure to send customer trade confirmations within required timeframes

Answer

Failing to send confirmations on time is a process failure — a breakdown in a required operational procedure — rather than a people, systems, or external event failure.

Question 3

Under FINRA Rule 4370, broker-dealers are required to create and maintain a business continuity plan that addresses:

Accepted Answer

A broad range of disruptions including data backup, communication protocols, and critical business constituent contact

Answer

FINRA Rule 4370 requires BCPs to address a wide range of business disruptions covering data backup, alternative communications, customer access to funds, and critical business operations.

Question 4

The three lines of defense model assigns which role to the compliance and risk management department?

Accepted Answer

Second line — oversight and monitoring of controls implemented by the first line

Answer

In the three lines of defense model, compliance and risk management serve as the second line, providing oversight and challenge to the first line's risk-taking activities.

Question 5

Which of the following BEST describes the operational risk associated with 'model risk' at a broker-dealer?

Accepted Answer

The risk that a financial model used for pricing or risk measurement is incorrect or misapplied

Answer

Model risk is the risk of loss arising from errors in the development, implementation, or use of financial models for pricing, valuation, or risk measurement.

(Series 99) Operations Professional Exam Practice Test

(Series 99) Operations Professional Exam Practice Test

Series 99 Operational Risk & Controls 4