Series 24 Flashcard > chapter 8 upload > Flashcards

chapter 8 upload Flashcards

(88 cards)

Study These Flashcards
1
Q

What is the know your customer rule referred to in FINRA Rule 2090?

A

A requirement for registered representatives to learn essential facts about each account opened

It ensures high standards of commercial honor and just and equitable principles of trade.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

List the essential customer account information required by members.

A
  • Name, address, phone number, occupation
  • Employer’s name and address
  • Associated person status
  • Social Security number or tax ID
  • Legal age status
  • Account type (cash or margin)
  • Officer, director, or shareholder status
  • Citizenship
  • Annual income, net worth, investment objectives
  • Investment experience, time horizon, liquidity needs, risk tolerance
  • Registered representative responsible for the account

This information is recorded on the new account form and is subject to recordkeeping requirements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

True or false: A supervisor can return a new account form without a signature if essential customer information is incomplete.

A

TRUE

This is consistent with good supervisory practices and a culture of compliance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are institutional accounts as per the relaxed rules for certain investors?

A
  • Banks, savings and loans, insurance companies
  • Registered investment companies
  • Investment advisers registered with the SEC or states
  • Entities with total assets of at least $50 million

These accounts have different requirements compared to individual accounts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a numbered account?

A

An account identified by a number or symbol at a customer’s written request

This allows for anonymity, particularly useful for celebrities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Under the USA PATRIOT Act, what must broker-dealers do regarding customer identity?

A
  • Verify identity of new customers
  • Maintain records of verification
  • Check against lists of known or suspected terrorists

These measures are designed to prevent money laundering and terrorism financing.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the minimum identifying information needed before opening an account for an individual?

A
  • Customer name
  • Date of birth
  • Address
  • Identification number (e.g., SSN)

Foreign nationals may use a passport number or other government-issued ID.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

True or false: A birth certificate is a valid means to verify an individual’s identity.

A

FALSE

A birth certificate does not contain a photograph or address.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the retention period for records relating to the verification of customers’ identity under the PATRIOT Act?

A

Five years

This applies after closing the account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What must a broker-dealer do if they cannot verify a customer’s identity?

A

Establish written supervisory procedures (WSPs) detailing actions to take

The SEC does not specify what to do in such cases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What must a retail customer receive within 30 days of opening an account?

A

A copy of the account record

This ensures the accuracy of the information obtained.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the maximum duration for a temporary hold on disbursements from a specified adult’s account?

A

55 business days

This includes an initial 15-day hold and possible extensions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the purpose of FINRA Rule 2165?

A

To protect specified adults from financial exploitation

It applies to individuals aged 65 and older or those with impairments.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is required for a member firm to place a temporary hold on disbursements from a specified adult’s account?

A

Reasonable belief of financial exploitation

Notification must be provided to authorized parties and trusted contacts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What training must a member develop under the specified adults rule?

A

Training policies or programs to ensure compliance with the requirements

This is essential for associated persons.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the definition of reasonable belief regarding mental or physical impairment?

A

Based on observed facts and circumstances in the business relationship

It helps identify customers who may need additional protection.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What should a representative do when a customer shows signs of diminished capacity?

A
  • Establish relationships with trustworthy relatives
  • Validate unusual instructions
  • Consider a power of attorney

Trusted persons should not stand to benefit personally from financial transactions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

True or false: A representative should move a victim with a suspected spine injury if their location is not immediately dangerous.

A

FALSE

Moving a victim could cause further injury, especially if there is a spinal injury.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are some measures firms can take to safeguard at-risk specified adults?

A
  • Track password reset requests
  • Monitor customer calls for keywords like ‘confused’ and ‘dementia’

These measures should be memorialized in the firm’s WSPs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What does money laundering involve?

A
  • Concealing the source of illegally obtained funds
  • Making illicit funds appear legitimate

It often involves activities like trafficking in narcotics and fraud.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What does the Bank Secrecy Act (BSA) require from member firms?

A
  • Identify money laundering risks
  • Develop and monitor an effective AML program
  • Report suspicious activities

Compliance with the BSA is crucial to thwarting criminal activities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the purpose of a Suspicious Activity Report (SAR)?

A
  • Report questionable transactions
  • Identify illegal activity

SARs must be filed for transactions involving at least $5,000 if suspicious.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the three stages of money laundering?

A
  • Placement
  • Layering
  • Integration

These stages describe how illicit funds are introduced and concealed in the financial system.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are some red flags that may suggest money laundering?

A
  • Transactions lacking business sense
  • Frequent large cash deposits
  • Multiple accounts under one name
  • Lack of concern about transaction costs

Detecting red flags requires additional diligence.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What is the **Automated Customer Account Transfer Service (ACATS)** used for?
* Initiate account transfers * Validate transfer instructions * Ship customer assets ## Footnote ACATS streamlines the process of transferring accounts between brokerage firms.
26
Firms must report any currency received over **$10,000** using which forms?
* Form 8300 * FinCEN CTR Form 112 ## Footnote These reports must be submitted within 15 days of receipt.
27
What is the role of the **Office of Foreign Assets Control (OFAC)**?
* Enforce sanctions against foreign countries * Combat terrorism and narcotics trafficking ## Footnote OFAC is part of the U.S. Department of the Treasury.
28
What must firms do if they receive a **Section 314(a) request** from FinCEN?
* Compare FinCEN's lists with the firm's customers * Respond within 14 calendar days ## Footnote This process is part of ongoing monitoring for suspicious activity.
29
What must the **receiving member** and the **carrying member** establish immediately upon transfer?
* Fail-to-receive contracts * Fail-to-deliver contracts ## Footnote These contracts are established at then-current market values against long/short positions that have not been delivered/received.
30
True or false: All assets are eligible to be transferred through **ACATS**.
FALSE ## Footnote Not all assets are eligible, and receiving brokerage firms may have their own requirements.
31
What must the **carrying member** do within one business day after receiving a transfer?
* Cancel all open orders * Validate and return the transfer instruction * Attach a showing of all securities positions ## Footnote The carrying firm may take exception to the transfer under certain conditions.
32
List the conditions under which a carrying firm may take exception to a transfer.
* Account is flat with no transferable assets * Invalid account number * Mismatched Social Security number * Mismatched account title * Improper customer signature ## Footnote These conditions must be met for the carrying firm to deny validation of a transfer.
33
What must a **carrying member** do if positions are not transferred due to a fail to receive?
* Establish fail-to-receive contracts * Establish fail-to-deliver contracts ## Footnote These contracts are necessary to address the non-transfer of positions.
34
What are **nontransferable assets** in the context of account transfers?
* Proprietary products * Unit trusts managed by the carrying firm ## Footnote Customers can either retain these assets or liquidate them for cash transfer.
35
What is required for a **bulk transfer** of customer accounts?
* Customer consent via affirmative consent letter ## Footnote A negative consent letter is permitted only under compelling reasons.
36
What must firms include in a **client negative response letter**?
* Description of the reason for the transfer * Notice of the right to object * Instructions for transferring to another firm * Sufficient time period for response * Disclosure of costs related to the transfer * Compliance statement with SEC Regulation S-P ## Footnote This letter informs clients about the transfer and their rights.
37
What does **FINRA Rule 2140** state regarding customer account transfers?
No member or AP may interfere with a customer's request to transfer her account ## Footnote This rule prevents interference during the change in employment of the customer's representative.
38
What must a member do upon learning of a **customer's death**?
* Cancel all open orders * Mark the account as deceased * Freeze the assets until receiving instructions ## Footnote The member must wait for documentation from the executor of the estate.
39
What documents are necessary to release assets of a **decedent**?
* Certified copy of the death certificate * Inheritance tax waivers * Letters testamentary ## Footnote These documents are required to process the release of assets.
40
What happens to a **joint tenants with right of survivorship (JTWROS)** account when one party dies?
The account cannot be transferred until a certified copy of the death certificate is received ## Footnote The surviving party cannot access the account until this documentation is provided.
41
How frequently must members send **customer account statements**?
At least quarterly ## Footnote This is a requirement to keep customers informed about their accounts.
42
What must be included in customer account statements regarding **free credit balances**?
* Notification of free credit balances * Disclosure that balances are not segregated * Availability on demand ## Footnote This notification must be sent at least quarterly.
43
What is **Regulation S-P** primarily concerned with?
Safeguarding nonpublic personal information from unauthorized access ## Footnote It mandates privacy policies and requires initial and annual privacy notices.
44
What distinguishes a **consumer** from a **customer** under Regulation S-P?
* Consumer: One-time financial product user * Customer: Ongoing relationship with the firm ## Footnote Consumers receive only an initial privacy notice, while customers receive both initial and annual notices.
45
What must a member firm provide when a registered representative contacts a former customer about transferring assets?
An educational communication highlighting key considerations ## Footnote This communication must be delivered at the time of contact.
46
What happens to discretionary authority upon the **death of an account owner**?
It ends ## Footnote Discretionary authority is revoked immediately upon the owner's death.
47
What does **Regulation S-P** require regarding customer information?
* Adequate safeguards of confidential customer information * Multi-factor authentication (MFA) * Virtual private network (VPN) * Strong passwords * Encryption * Authentication protocols * Avoidance of spam, phishing, smishing, and account takeover attempts (ATOs) ## Footnote Regulation S-P aims to protect customer information and records from unauthorized access.
48
True or false: A customer remains a customer even if their account is transferred due to a merger.
TRUE ## Footnote The status of being a customer is maintained regardless of account transfer circumstances.
49
What are some **security concerns** related to technological advancements?
* Data interception * Wireless connections vulnerability * Cyberattacks on corporate networks * Need for strong controls over technology ## Footnote Firms must prove to regulators that their security controls are resilient enough to protect customers.
50
What must firms address regarding **paper security procedures**?
* Proper destruction of paper waste * Removal of sensitive documents ## Footnote Firms must ensure that sensitive documents are not discarded improperly to prevent identity theft.
51
What is a potential risk when using a **nonsecure hot spot**?
* Hackers can access accounts and send fraudulent requests ## Footnote Using unsecured connections can expose sensitive information to criminals.
52
What are the **reasonable opt-out methods** for disclosures of nonpublic personal information?
* Reply form with the opt-out notice * Electronic means to opt out * Toll-free number for customers ## Footnote The SEC mandates that opt-out methods must be reasonable and accessible.
53
What does **Regulation S-AM** prohibit regarding marketing solicitations?
* Using eligibility information for marketing without disclosure * Not providing a reasonable opportunity to opt out * Proceeding with marketing if the consumer has opted out ## Footnote This regulation applies to broker-dealers and investment companies.
54
What does **Regulation S-ID** require member firms to develop?
* Written identity theft prevention programs ## Footnote Firms must implement measures to protect customer information from identity theft.
55
What are the **three principal categories** of communications with the public?
* Retail communications * Correspondence * Institutional communications ## Footnote Each category has specific definitions and regulatory requirements.
56
Define **retail communication**.
Any written communication distributed to more than 25 retail investors within 30 days ## Footnote Retail investors are individuals who are not institutional investors.
57
What is the definition of **correspondence** in communication?
Written communication distributed to 25 or fewer retail investors within 30 days ## Footnote Prior principal review is not required for correspondence.
58
What must retail communications prominently state?
* Name of the member * Name of the firm as recorded on Form BO ## Footnote This ensures transparency and compliance with regulatory standards.
59
What is required for **institutional communications** if they may be forwarded to retail investors?
They must be treated as retail communications ## Footnote This ensures that communications comply with stricter retail standards.
60
What must be included in retail communication about **collateralized mortgage obligations (CMOs)**?
* Characteristics and risks of CMOs * Interest rates and their effects * Tax considerations * Transaction costs * Liquidity ## Footnote Educational material must be provided to customers before selling CMOs.
61
What is the filing requirement for retail communications related to investment companies?
Must be filed with FINRA within 10 days of first use ## Footnote This applies to mutual funds, variable contracts, and direct participation programs.
62
True or false: Prior principal approval is required for all retail communications.
FALSE ## Footnote Approval is not required if another member has filed it with FINRA and it has not been materially altered.
63
What must be disclosed regarding a **CMO's yield** and average life?
They will fluctuate depending on the prepayment rate and changes in interest rates ## Footnote This is crucial for understanding the risks associated with CMOs.
64
How many days in advance must retail communication about options be filed with **FINRA**?
At least 10 days before first use ## Footnote This applies to communications related to options and security futures.
65
What are the **limitations** of options advertising?
* General description of the security and its issuer * Description of the nature and functions of the options markets * Name and address of the person placing the advertisement ## Footnote Recommendations and past performance are not permitted.
66
For how long must a member file retail communication after becoming a **FINRA member**?
For a period of one year ## Footnote After this period, prefiling is not required except for specific types of communication.
67
What types of communications are **excluded** from filing requirements?
* Changes in member's name or personnel * Identifying only a member's Nasdaq symbol * Internal distribution only * Blind recruitment ads ## Footnote Also excluded are prospectuses and similar documents filed with the SEC.
68
What must all filings with **FINRA's Advertising Regulation Department** include?
* Actual or anticipated date of first use * Name and title of the principal who approved the communication * Date the approval was given ## Footnote This ensures accountability and traceability of communications.
69
True or false: **Public appearances** require prior principal approval.
FALSE ## Footnote However, they are subject to other supervisory requirements.
70
What is an **independently prepared reprint**?
An article reprint prepared by an independent publisher and not materially altered by the member firm ## Footnote Requires preuse approval by a principal but not subject to filing requirements.
71
What is the difference between **correspondence** and **retail communication** in instant messaging?
Correspondence does not require prior principal approval; retail communication does ## Footnote FINRA requires firms to monitor and archive message traffic.
72
What must be disclosed if a **testimonial** is paid?
It must be disclosed that it is a paid testimonial ## Footnote Testimonials must not mislead or imply past performance guarantees.
73
What are the **suitability issues** related to social media communications?
* Recommendations trigger suitability rules * Must consider facts and circumstances ## Footnote Compliance officers must develop procedures for supervising these communications.
74
What is **yield chasing**?
Taking risks to achieve greater returns in a low-yield environment ## Footnote This can lead to unsuitable recommendations for retail investors.
75
What must a registered representative know to make a **suitable recommendation**?
* Customer's profile * Characteristics and risks of the securities ## Footnote This knowledge is essential to avoid unsuitable trades.
76
What is the definition of a **public appearance** according to FINRA?
Participation in an interactive electronic forum, such as a seminar or webinar ## Footnote These appearances are unscripted and do not require prior approval.
77
What is required for **bond fund volatility ratings** in retail communication?
They must be prefiled ## Footnote This ensures compliance with regulatory standards.
78
What is the definition of a **public appearance** according to FINRA?
An unscripted participation in an interactive electronic forum, such as an online seminar ## Footnote FINRA does not require prior principal approval for extemporaneous remarks made by representatives during public appearances.
79
True or false: **Static blogs** are considered advertisements by FINRA.
TRUE ## Footnote If a firm or its APs sponsor a static blog, they must obtain prior principal approval.
80
What must be approved by a principal before being posted on a social networking site?
Static content ## Footnote This includes a representative's profile, background, or wall information.
81
What is the maximum character limit for posts on **X**, formerly known as Twitter?
280 characters ## Footnote Posts made by a member firm or a representative on its behalf are considered retail communication.
82
What must be disclosed if more than **$100** was paid for a testimonial?
The amount paid for the testimonial ## Footnote Any retail communication that includes a testimonial must explain that it may not represent the experience of others.
83
What is prohibited under **FINRA Rule 5230**?
Furnishing theater tickets to a news reporter to influence stock prices ## Footnote This is considered a violation of the rule regarding paid advertising.
84
What must firms ensure regarding associated persons participating in social media for business purposes?
They are supervised and monitored ## Footnote Firms must be prepared to discipline anyone found in violation of company policies and FINRA rules.
85
What is required when offering **investment analysis tools**?
* Description of criteria and methodology used * Statement that results may vary * Description of the universe of investments used * Statement that outcomes are hypothetical ## Footnote Members must provide FINRA with access to the tool upon request.
86
What are the hours during which **cold calls** can be made according to FINRA Rule 3230?
8:00 am to 9:00 pm at the called person's location ## Footnote Callers must disclose their name and the purpose of the call.
87
What must be done if a called person wishes not to be re-contacted?
Their name and phone number must be placed on a do-not-call list ## Footnote This list must be maintained for an indefinite period.
88
What is the **safe harbor provision** regarding inadvertent calls to the national do-not-call list?
No violation if the call is made no more than 31 days from the date the firm obtained the latest version of the list ## Footnote This provision protects members from penalties for accidental calls.
Series 24 Flashcard
flashcards
Decks in class (25)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions