Stock Broker Securities Regulations & Compliance 2

Question 1

What is the 'know your customer' (KYC) obligation primarily designed to prevent?

Accepted Answer

Money laundering and fraud

Answer

KYC obligations require broker-dealers to verify customer identities and understand their financial profiles primarily to prevent money laundering, fraud, and terrorist financing.

Question 2

A registered representative who recommends unsuitable investments to a customer may violate which FINRA rule?

Accepted Answer

FINRA Rule 2111

Answer

FINRA Rule 2111 (Suitability) requires that recommendations be suitable for the customer based on their investment profile, including risk tolerance and financial situation.

Question 3

What does 'churning' refer to in the context of broker-dealer regulations?

Accepted Answer

Excessive trading in a customer account to generate commissions

Answer

Churning is the prohibited practice of excessively trading in a customer's account primarily to generate commissions for the broker, regardless of the customer's investment objectives.

Question 4

Under FINRA rules, what is the maximum annual contribution an employee of a member firm may give to a municipal securities issuer official who can influence the firm's business?

Accepted Answer

$250

Answer

MSRB Rule G-37 and FINRA's pay-to-play rules limit contributions to $250 per official per year by individuals who can vote in elections where the official appears.

Question 5

Which act requires broker-dealers to file Suspicious Activity Reports (SARs) for transactions that may involve money laundering?

Accepted Answer

Bank Secrecy Act

Answer

The Bank Secrecy Act (BSA) requires broker-dealers to file SARs for transactions of $5,000 or more that involve potential money laundering or other financial crimes.

Stock Broker Practice Test

Stock Broker Practice Test

Stock Broker Securities Regulations & Compliance 2