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CIRO Supervisor practice questions

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Question 1Supervisory Framework, Ethics, and Regulatory Obligations

Under the CIRO supervisory framework, which body is responsible for hearing disciplinary matters and imposing sanctions on a dealing representative?

  1. The compliance department of the dealer member that employs the representative
  2. A hearing panel drawn from the applicable regional council Correct answer.
  3. The Office of the Superintendent of Financial Institutions
  4. The Canadian Securities Administrators as a collective body

Explanation

CIRO delegates disciplinary adjudication to hearing panels formed from its regional councils, which conduct public hearings and impose penalties such as fines, suspensions, or termination of approval. The employer's compliance staff investigate and prosecute internally but cannot impose regulatory sanctions.

Question 2Supervisory Framework, Ethics, and Regulatory Obligations

A registered representative learns that a client is the subject of an active insider-trading investigation and mentions it to a colleague. Which obligation is most directly engaged?

  1. Best execution of client orders
  2. Confidentiality of regulatory and client information Correct answer.
  3. Suitability of the client's investment portfolio
  4. Segregation of client and firm assets

Explanation

Registered representatives must keep confidential both client information and information about regulatory investigations learned through their position. Disclosing investigative details to a colleague without a legitimate need breaches that duty and may also impair the investigation.

Question 3Supervisory Framework, Ethics, and Regulatory Obligations

Which statement best describes the purpose of CIRO's conflict-of-interest rules for approved persons?

  1. They require all conflicts to be resolved by the client's written consent alone
  2. They require identification, disclosure, and management of conflicts in the client's interest Correct answer.
  3. They prohibit any transaction in which the firm earns a fee
  4. They apply only to conflicts involving related-party issuers

Explanation

Conflict-of-interest rules require approved persons to identify material conflicts, disclose them clearly, and manage or avoid them in a manner that puts the client's interest first. Disclosure alone is not always sufficient; the response must be proportionate to the risk of harm to the client.

Question 4Supervisory Framework, Ethics, and Regulatory Obligations

A supervisor discovers that a representative has been borrowing money from clients. What is the supervisor's most appropriate first action under CIRO requirements?

  1. Escalate the matter internally and report it to CIRO as required Correct answer.
  2. Wait for a client complaint before taking any action
  3. Transfer the representative to a non-client-facing role without further reporting
  4. Repay the loans from the firm's own funds and close the file

Explanation

Borrowing from clients is a serious breach that supervisors must escalate promptly through the firm's internal reporting channels and report to CIRO where required. Internal reassignment or repayment does not discharge the regulatory reporting obligation.

Question 5Supervisory Framework, Ethics, and Regulatory Obligations

Which of the following best describes the standard of conduct expected of an approved person when dealing with clients?

  1. Act honestly and in good faith in the client's best interest Correct answer.
  2. Follow client instructions without any independent judgment
  3. Maximize the firm's revenue on each transaction
  4. Recommend products based solely on the firm's inventory

Explanation

Approved persons must deal fairly, honestly, and in good faith, and must put the client's best interest ahead of personal or firm gain. This overarching standard informs suitability, disclosure, and conflict-management duties.

Question 6Supervisory Framework, Ethics, and Regulatory Obligations

What is the primary purpose of CIRO's continuing education program for registered representatives?

  1. To satisfy provincial securities licensing requirements for firms
  2. To prepare candidates for the initial registration examination
  3. To maintain and update competence throughout a representative's career Correct answer.
  4. To certify supervisors in accounting and financial reporting

Explanation

Continuing education ensures that registered individuals keep their knowledge and skills current after initial licensing. It typically combines compliance training with professional development covering products, markets, and regulatory changes.

Question 7Supervisory Framework, Ethics, and Regulatory Obligations

A client asks a representative to execute a trade that the representative believes is unsuitable. What is the representative's most appropriate course of action?

  1. Execute the order and note the concern only if a loss occurs
  2. Execute the order immediately because it is unsolicited
  3. Decline to proceed until suitability concerns are resolved and documented Correct answer.
  4. Refer the client to another firm without discussion

Explanation

Even for unsolicited orders, representatives must address clear suitability concerns and document the discussion before proceeding. Blind execution can breach the duty to deal fairly and may expose the client to unsuitable risk.

Question 8Supervisory Framework, Ethics, and Regulatory Obligations

Which record-keeping obligation applies to a dealer member under CIRO rules?

  1. Retain records only while the client account remains open
  2. Destroy records once the client signs a release
  3. Store records exclusively in paper form
  4. Retain required client and order records for the prescribed period and produce them on request Correct answer.

Explanation

Dealer members must maintain complete and accurate records for prescribed retention periods and make them available to CIRO on request. Retention periods continue after an account closes so that regulators can reconstruct past conduct.

Question 9Supervisory Framework, Ethics, and Regulatory Obligations

A representative receives a large unsolicited order from a client whose account profile shows a conservative, income-focused mandate. The order would concentrate most of the account in a speculative small-cap stock. How should the representative respond?

  1. Execute a smaller version of the order without informing the client
  2. Discuss the suitability concern, document the client's instructions, and escalate if the client insists Correct answer.
  3. Execute the order immediately because unsolicited orders are exempt from suitability review
  4. Refuse all future orders from the client and close the account

Explanation

Unsolicited status does not remove the duty to raise clear suitability concerns, especially where an order would fundamentally change the account's risk profile. The representative should document the discussion and escalate according to firm procedures if the client insists.

Question 10Supervisory Framework, Ethics, and Regulatory Obligations

A representative sits on the board of a private company that is seeking financing from the representative's clients. Which action best satisfies CIRO conflict-of-interest requirements?

  1. Disclose the relationship in writing and obtain approval before soliciting clients Correct answer.
  2. Proceed without disclosure because the company is not a reporting issuer
  3. Rely on the firm's general marketing materials to imply the relationship
  4. Disclose the relationship only after the financing closes

Explanation

Outside activities that create a material conflict require written disclosure to the firm and client disclosure, and typically prior firm approval. Undisclosed board roles combined with client fundraising present a serious conflict that must be managed transparently.

Question 11Supervisory Framework, Ethics, and Regulatory Obligations

A supervisor notices that a representative's trades are consistently placed just before favorable news announcements. What is the supervisor's most appropriate response?

  1. Conduct no review unless a client complains
  2. Immediately terminate the representative without investigation
  3. Ignore the pattern because timing alone cannot be evidence
  4. Conduct a documented review and escalate suspected insider trading to compliance and CIRO Correct answer.

Explanation

Supervisors must investigate red flags such as suspiciously timed trading and document their review. Suspected insider trading is a serious matter that must be escalated internally and reported to CIRO as required.

Question 12Supervisory Framework, Ethics, and Regulatory Obligations

Which statement accurately describes the relationship between CIRO and the provincial securities commissions?

  1. CIRO sets criminal penalties for securities fraud
  2. CIRO has no reporting relationship with provincial regulators
  3. CIRO replaces the commissions as the sole securities regulator in Canada
  4. CIRO is recognized as a self-regulatory organization accountable to the commissions for enforcing rules Correct answer.

Explanation

CIRO operates as a self-regulatory organization recognized and overseen by the Canadian Securities Administrators, and it is accountable to the provincial commissions for its rules and enforcement. Ultimate statutory authority remains with the provincial regulators.

Question 13Supervisory Framework, Ethics, and Regulatory Obligations

A representative wants to accept a gift of substantial value from a client who has just been allocated a large share of a hot issue. What is the most appropriate action under CIRO rules?

  1. Accept the gift and disclose it to the client only
  2. Accept the gift because it comes from a client rather than an issuer
  3. Decline or seek firm approval and record the gift in the firm's gift log Correct answer.
  4. Accept the gift and disclose it at the next annual review

Explanation

Gifts that could influence or appear to influence conduct must be declined or approved under firm policy and recorded in the gift and entertainment log. The timing relative to an allocation heightens the conflict and the need for transparency.

Question 14Supervisory Framework, Ethics, and Regulatory Obligations

Under CIRO rules, when must a dealer member report a change in a registered representative's registration category?

  1. Promptly upon the change, using the prescribed regulatory filing system Correct answer.
  2. Within five years of the change
  3. Only at the next annual registration renewal
  4. Only if the representative requests it in writing

Explanation

Changes to registration categories and other material registration information must be reported promptly through the prescribed filing system. Timely reporting allows CIRO to confirm that proficiency and conduct requirements continue to be met.

Question 15Supervisory Framework, Ethics, and Regulatory Obligations

A client complains that a representative made unauthorized trades in her account. The representative claims the client verbally approved each trade. What should the supervisor do first?

  1. Reverse all trades without any investigation
  2. Dismiss the complaint because verbal approval is permitted
  3. Ask the representative to prepare a written denial for the client
  4. Obtain and review the account documentation, trade records, and any call recordings Correct answer.

Explanation

Supervisors must investigate complaints by gathering the relevant evidence, including account agreements, trade records, and communications. A conclusion should follow the evidence rather than being predetermined in favor of either party.

Question 16Supervisory Framework, Ethics, and Regulatory Obligations

Which of the following is a core element of a dealer member's adequate supervisory system under CIRO rules?

  1. Written policies, designated supervisors, and documented review of account activity Correct answer.
  2. Reliance on clients to report problems with their accounts
  3. A single annual meeting of the compliance team
  4. Supervision limited to new account openings

Explanation

An adequate supervisory system requires written policies and procedures, clearly designated supervisory responsibilities, and ongoing documented review of account activity. Supervision must be continuous and risk-based rather than a one-time event.

Question 17Supervisory Framework, Ethics, and Regulatory Obligations

A representative recommends a leveraged exchange-traded fund to a retired client with a short time horizon and limited tolerance for volatility. Which principle is most directly at risk?

  1. The best execution obligation requiring the lowest possible commission
  2. The segregation obligation protecting client assets
  3. The record-retention obligation for order tickets
  4. The suitability obligation requiring recommendations to fit the client's circumstances Correct answer.

Explanation

Suitability requires that a recommendation be appropriate for the client's objectives, risk tolerance, time horizon, and financial situation. A leveraged product with daily reset characteristics is generally inconsistent with a conservative, short-horizon retiree profile.

Question 18Supervisory Framework, Ethics, and Regulatory Obligations

A representative is asked to provide a reference for a former colleague applying for registration at another dealer. What obligation applies?

  1. Provide only positive information to help the candidate
  2. Disclose confidential client information to support the reference
  3. Provide accurate information and avoid misleading omissions about known conduct issues Correct answer.
  4. Refuse all reference requests as a matter of policy

Explanation

References must be truthful and must not omit known material conduct issues that could affect the candidate's fitness for registration. Confidential client information should never be disclosed to support a reference.

Question 19Supervisory Framework, Ethics, and Regulatory Obligations

Which statement best describes the duty of a supervisor when reviewing a representative's outside business activity?

  1. Assess whether the activity creates a conflict or reputational risk and document the decision Correct answer.
  2. Approve all outside activities automatically to avoid discouraging initiative
  3. Prohibit all outside activities regardless of their nature
  4. Delegate approval to the representative's assistant

Explanation

Supervisors must evaluate outside activities for conflicts of interest, time commitment, and reputational risk, and must document the approval decision. Automatic approval or blanket prohibition both fail to apply the required judgment.

Question 20Supervisory Framework, Ethics, and Regulatory Obligations

A representative moves from one dealer to another and wants to contact former clients about the move. Which consideration is most relevant under CIRO requirements?

  1. The departing firm's records and the new firm's policies govern permissible client contact Correct answer.
  2. The representative may use confidential client information freely after resignation
  3. Client contact is prohibited until one year has passed
  4. The representative may take the former firm's client list without restriction

Explanation

Client contact after a move must respect the former firm's records, any applicable employment terms, and the new firm's policies, while protecting client confidentiality. Representatives cannot simply take or use confidential client information after leaving.

Question 21Supervisory Framework, Ethics, and Regulatory Obligations

A representative has a personal account that trades in the same securities she recommends to clients. Which control most directly addresses the resulting conflict?

  1. A requirement to recommend only securities she does not personally own
  2. A prohibition on all personal investing
  3. Annual disclosure to clients of every personal trade
  4. A personal trading policy with pre-clearance and monitoring requirements Correct answer.

Explanation

Personal trading policies typically require pre-clearance, holding periods, and monitoring to prevent front-running and to manage conflicts between personal and client accounts. Prohibiting all personal investing is excessive and not the standard approach.

Question 22Supervisory Framework, Ethics, and Regulatory Obligations

A dealer member's compliance review finds that a branch manager approved several new accounts without obtaining required know-your-client information. What is the most appropriate supervisory conclusion?

  1. The deficiency should be resolved by closing all accounts at the branch
  2. The deficiency is immaterial because the accounts were approved
  3. The deficiency reflects an inadequate supervisory system and requires remediation and reporting Correct answer.
  4. The deficiency should be corrected only if a client complains

Explanation

Missing KYC information undermines suitability and indicates a breakdown in the supervisory system that must be remediated and, where required, reported. Regulators expect firms to identify root causes and strengthen controls rather than treat such gaps as immaterial.

Question 23Supervisory Framework, Ethics, and Regulatory Obligations

A representative learns that a client is using an account to launder proceeds of crime. Which sequence of actions best reflects CIRO and anti-money-laundering obligations?

  1. Continue processing transactions while monitoring the client indefinitely
  2. Confront the client directly and demand an explanation before reporting
  3. Close the account quietly and return the funds to the client
  4. Escalate to the designated compliance officer and file required reports without tipping off the client Correct answer.

Explanation

Suspicious activity must be escalated to the firm's designated compliance officer for assessment and any required regulatory reporting. Tipping off the client is prohibited, and continuing to process transactions without reporting can expose the firm to serious liability.

Question 24Supervisory Framework, Ethics, and Regulatory Obligations

A representative discloses to a client that another client is being investigated for fraud, believing the disclosure is harmless. Which statement best characterizes the breach?

  1. It is permissible because the information is true
  2. It breaches confidentiality and may also impede a regulatory investigation Correct answer.
  3. It is permissible if the client promises to keep it secret
  4. It is permissible because the investigated client is not a customer of the representative

Explanation

Confidentiality protects client and regulatory information regardless of truth, and disclosure can compromise an investigation and expose the firm to liability. Promises of secrecy from the recipient do not cure the breach.

Question 25Supervisory Framework, Ethics, and Regulatory Obligations

A supervisor is designing a risk-based monitoring program for a large branch. Which approach best aligns with CIRO supervisory expectations?

  1. Focus monitoring on the lowest-volume accounts to save resources
  2. Rely exclusively on annual attestations from representatives
  3. Review every trade identically regardless of risk
  4. Prioritize review resources on higher-risk representatives, products, and trading patterns Correct answer.

Explanation

Risk-based supervision directs resources toward the areas of greatest potential client harm, such as complex products, high-turnover accounts, and representatives with prior issues. Uniform or attestation-only approaches fail to identify emerging problems efficiently.

Question 26Supervisory Framework, Ethics, and Regulatory Obligations

Under CIRO rules, which obligation applies to a dealer member when a client's complaint alleges a serious sales misconduct matter that the client refuses to resolve informally?

  1. The member may withhold the complaint from its complaint log if the client signs a confidentiality waiver
  2. The member must refer the matter directly to a provincial securities commission hearing panel
  3. The member may close the client's account to prevent further escalation of the dispute
  4. The member must record the complaint and report it to CIRO within the required timeframe while preserving related records Correct answer.

Explanation

CIRO requires dealer members to maintain a complaint handling system that logs complaints, investigates them, and reports serious complaints to the regulator within prescribed timelines. Records supporting the complaint must be retained so that supervisory and regulatory review is possible. A client's preference for confidentiality does not remove the reporting obligation.

Question 27Supervisory Framework, Ethics, and Regulatory Obligations

A registered representative is also a licensed insurance agent and wants to sell segregated fund contracts to her securities clients. Which approach best complies with CIRO supervisory expectations for outside activities?

  1. Disclose the activity to the dealer member and obtain approval before conducting the outside business Correct answer.
  2. Conduct the insurance sales freely because a separate licence already covers that activity
  3. Limit the activity to existing clients and keep records only in the insurance file
  4. Notify CIRO directly and begin the activity once the notice is sent

Explanation

CIRO supervisory standards require representatives to disclose outside business activities to their dealer member and obtain approval before engaging in them. The member then assesses conflicts of interest, record-keeping, and supervision implications. Self-reporting to the regulator does not replace the member's approval process.

Question 28Supervisory Framework, Ethics, and Regulatory Obligations

A branch supervisor discovers that a representative has been executing discretionary trades for a client who never signed a discretionary authorization. Which supervisory response best reflects CIRO requirements?

  1. Wait for the client to complain before conducting any investigation
  2. Transfer the client to another representative and close the file without further review
  3. Instruct the representative to obtain a signed authorization retroactively and take no further action
  4. Review and document the trades, escalate the matter, and take corrective action including possible client remediation Correct answer.

Explanation

Unauthorized discretionary trading is a serious conduct issue that the supervisor must investigate, document, escalate through the member's supervisory structure, and remediate. Retroactive paperwork cannot cure trades that were made without prior client authorization. The member must also assess whether other clients are affected and whether reporting to CIRO is required.

Question 29Supervisory Framework, Ethics, and Regulatory Obligations

A dealer member's compliance department wants to strengthen its gatekeeper role before onboarding a new registered representative. Which action best aligns with CIRO expectations for fitness and propriety assessments?

  1. Rely solely on the representative's self-declaration of good standing with prior employers
  2. Skip verification when the individual was referred by a senior manager
  3. Verify the individual's employment history, regulatory record, and any relevant criminal or disciplinary information Correct answer.
  4. Defer all verification to the provincial securities commission after registration is granted

Explanation

CIRO expects dealer members to act as gatekeepers by verifying an applicant's background, including employment history, regulatory status, and any disciplinary or criminal matters, before sponsoring registration. Self-declarations and internal referrals are not sufficient evidence of fitness. The member must document the due diligence it performs.

Question 30Supervisory Framework, Ethics, and Regulatory Obligations

A supervisor reviews a representative's file and finds that the representative recommended a high-risk private placement to several elderly clients with modest incomes and no prior alternative investment experience. The representative argues that each client signed a risk acknowledgment form. Which conclusion best reflects CIRO's suitability and supervisory standards?

  1. The supervisor may ignore the pattern because each trade was individually acknowledged
  2. Documented acknowledgment supports but does not replace the member's duty to assess and supervise suitability Correct answer.
  3. Suitability is assessed only at account opening, so later recommendations need no review
  4. The signed risk acknowledgment fully satisfies the member's suitability obligation

Explanation

Client risk acknowledgments are evidence of disclosure but do not displace the member's obligation to assess suitability based on the client's circumstances and to supervise recommendations. A pattern of high-risk recommendations to vulnerable clients is a supervisory red flag requiring review and possible corrective action. Suitability is a continuing duty, not a one-time account-opening exercise.

Question 31Supervision of Client Accounts and Account Opening

Under the client money rules a firm holds for a CIRO-regulated dealer, client funds must normally be deposited into which type of account?

  1. The dealer's general operating account
  2. A designated trust account at an approved financial institution Correct answer.
  3. An escrow account controlled by the client
  4. A partner's personal savings account

Explanation

Client money must be held in a designated trust or segregated account at an approved institution so that it remains separate from the firm's own assets and can be identified and returned if the firm fails.

Question 32Supervision of Client Accounts and Account Opening

A new individual client opens a cash account. Which step best satisfies the know-your-client obligation before the account is used?

  1. Collect and verify identity, financial circumstances, and investment objectives Correct answer.
  2. Rely on the referring friend's verbal assurance about the client
  3. Defer all verification until the first trade settles
  4. Obtain only a signature card and a mailing address

Explanation

Know-your-client requires the firm to gather and verify identity plus enough information on financial situation, objectives, and risk tolerance to assess suitability. Identity verification and suitability information must be in place before the account is used.

Question 33Supervision of Client Accounts and Account Opening

A client asks the dealer to open an account in the name of a corporation. What is the most appropriate supervisory action?

  1. Require the corporation to provide a personal guarantee from one director
  2. Open the account under the name of the signing officer personally
  3. Verify the corporation's existence and identify its directors and beneficial owners Correct answer.
  4. Accept the corporate name at face value without further checks

Explanation

For corporate accounts, the firm must confirm the entity's legal existence and identify the individuals who control it, including directors and beneficial owners. This prevents misuse of corporate structures to conceal identity.

Question 34Supervision of Client Accounts and Account Opening

An agent wants to open an account for a client and also be named on the account. How should the firm respond?

  1. Open the account in the agent's name to simplify administration
  2. Allow it automatically because the client consented verbally
  3. Refuse any account where an agent is involved
  4. Permit it only if the arrangement is documented and approved under the firm's conflict rules Correct answer.

Explanation

Where an agent has a personal interest in a client account, a conflict of interest arises that must be identified, documented, and approved under the firm's policies. Blanket refusal is not required, but unchecked involvement is not permitted.

Question 35Supervision of Client Accounts and Account Opening

A client provides a power of attorney authorizing a third party to trade the account. What must the firm do before acting on it?

  1. Review the document for validity and record the scope of authority granted Correct answer.
  2. Accept any handwritten note signed by the client
  3. Assume unlimited trading authority for the named person
  4. Require the client to re-sign the document each month

Explanation

The firm must review the power of attorney to confirm it is valid and then record the exact scope of authority, such as whether trading and withdrawals are permitted. Authority beyond what the document grants cannot be assumed.

Question 36Supervision of Client Accounts and Account Opening

Which situation most clearly indicates a potential identity fraud red flag at account opening?

  1. Documents that appear altered and details that conflict with independent sources Correct answer.
  2. A client who prefers electronic statements
  3. A client who asks many questions about fees
  4. A client who provides two pieces of government identification

Explanation

Altered documents and information that conflicts with independent verification are classic indicators of possible identity fraud and require escalation. Ordinary questions about fees or statement preferences are normal client behavior.

Question 37Supervision of Client Accounts and Account Opening

A firm suspects that an account is being used to launder money. What is the appropriate first step?

  1. Continue trading and review the matter at year end
  2. Close the account quietly without any record
  3. Escalate to the designated compliance function and follow reporting procedures Correct answer.
  4. Confront the client and demand an explanation on the spot

Explanation

Suspicions of money laundering must be escalated promptly to the designated compliance or anti-money-laundering function so that required reporting and recordkeeping can occur. The firm should not tip off the client or ignore the matter.

Question 38Supervision of Client Accounts and Account Opening

A client's account shows a sudden pattern of deposits just below the reporting threshold followed by rapid transfers abroad. This pattern most likely suggests which concern?

  1. Structuring to avoid reporting requirements Correct answer.
  2. An error in the firm's fee schedule
  3. A routine change in the client's address
  4. A normal savings plan by the client

Explanation

Repeated transactions deliberately kept below a reporting threshold, followed by rapid outflows, are characteristic of structuring to evade reporting obligations. Such patterns require escalation and documentation.

Question 39Supervision of Client Accounts and Account Opening

Which recordkeeping practice best supports supervision of client accounts?

  1. Discarding identity documents once the first trade settles
  2. Retaining account opening documents and suitability records for the required period Correct answer.
  3. Storing records in a format only one employee can access
  4. Keeping only the most recent statement for each account

Explanation

Account opening documents, verification records, and suitability information must be retained for the period required by regulation and be readily retrievable. Complete, accessible retention allows the firm to demonstrate compliance during reviews.

Question 40Supervision of Client Accounts and Account Opening

A client wants to add a joint holder to an existing individual account. What should the firm do?

  1. Add the name to the statement without further documentation
  2. Complete KYC for the new holder and document the change in account authority Correct answer.
  3. Treat the new holder as a non-client with no verification
  4. Require the original client to close and reopen with no records

Explanation

Adding a joint holder changes account ownership and authority, so the new holder must complete KYC and the change must be documented. Simply altering the statement leaves the firm without verified information on a person with access to the account.

Question 41Supervision of Client Accounts and Account Opening

What is the primary purpose of collecting a client's investment objectives and risk tolerance at account opening?

  1. To support suitability assessments for recommendations and trades Correct answer.
  2. To calculate the firm's own capital requirements
  3. To set the client's credit limit for margin
  4. To determine the firm's marketing strategy

Explanation

Objectives and risk tolerance are collected so the firm can judge whether recommendations and trades are suitable for that client. They are client-protection tools, not marketing or capital-planning inputs.

Question 42Supervision of Client Accounts and Account Opening

A client refuses to provide employment and income information during onboarding. What is the most appropriate response?

  1. Proceed as if the client had provided average income figures
  2. Explain why the information is required and document the refusal and any limits on service Correct answer.
  3. Open the account with full trading privileges regardless
  4. Report the client to the regulator immediately

Explanation

The firm should explain the purpose of the information, document the refusal, and consider whether the account can be opened with appropriate restrictions. Fabricating or assuming information undermines suitability and compliance records.

Question 43Supervision of Client Accounts and Account Opening

Which individual typically has authority to approve the opening of a higher-risk client account under a dealer's supervision framework?

  1. Any registered representative handling the file
  2. A designated supervisor or compliance officer under documented procedures Correct answer.
  3. The receptionist who receives the paperwork
  4. The client's own accountant

Explanation

Higher-risk accounts should be approved under documented procedures by a designated supervisor or compliance officer who can assess the risk. Approval by an interested representative or an outside party does not provide independent oversight.

Question 44Supervision of Client Accounts and Account Opening

A registered representative wants to open an account for a close family member. What control most appropriately addresses the resulting conflict?

  1. Require review and approval by an independent supervisor Correct answer.
  2. Prohibit the representative from ever discussing the account
  3. Transfer the account to a different firm automatically
  4. Allow the representative to self-approve the account

Explanation

Accounts for relatives of a representative create a conflict of interest that should be reviewed and approved by an independent supervisor. Self-approval removes the independent check that the control is meant to provide.

Question 45Supervision of Client Accounts and Account Opening

What is the key supervisory concern when a client grants discretionary trading authority to a representative?

  1. Ensuring the representative sets the client's fee schedule
  2. Requiring the client to trade at least once a week
  3. Confirming the client knows the representative's home address
  4. Ensuring the authority is documented, approved, and monitored for suitability Correct answer.

Explanation

Discretionary authority concentrates control with the representative, so the firm must confirm the authority is properly documented and approved and must monitor trades for suitability. Ongoing monitoring protects the client from unauthorized or unsuitable activity.

Question 46Supervision of Client Accounts and Account Opening

A client account receives a large deposit from an unrelated third party. Which follow-up is most appropriate?

  1. Return the funds without any record of the inquiry
  2. Accept the deposit without inquiry because it cleared the bank
  3. Apply the deposit to the representative's commission account
  4. Inquire about the source of funds and document the explanation Correct answer.

Explanation

Deposits from unrelated third parties can indicate undisclosed beneficial ownership or illicit funds, so the firm should inquire about the source and document the response. Clearing the bank does not resolve the source-of-funds question.

Question 47Supervision of Client Accounts and Account Opening

A client asks to open an account using a numbered identifier instead of providing their name. How should the firm proceed?

  1. Require full identity verification and record the actual client identity Correct answer.
  2. Accept the numbered identifier as sufficient identification
  3. Ask the representative to vouch for the client's identity
  4. Open the account and defer identity checks indefinitely

Explanation

Numbered or coded accounts do not remove the obligation to identify the client; the firm must verify and record the true identity. Deferring verification or relying on a representative's assurance fails the KYC requirement.

Question 48Supervision of Client Accounts and Account Opening

Which action best demonstrates ongoing monitoring of client accounts after opening?

  1. Monitoring only accounts that hold margin balances
  2. Reviewing accounts only when a client complains
  3. Periodically reviewing activity against the client's profile and updating KYC information Correct answer.
  4. Updating KYC records once at opening and never again

Explanation

Ongoing monitoring means comparing account activity with the client's documented profile and refreshing KYC information as circumstances change. Monitoring only on complaint or only for margin accounts leaves most accounts unsupervised.

Question 49Supervision of Client Accounts and Account Opening

A client's documented objective is capital preservation, but the representative proposes a highly volatile speculative product. What should supervision require?

  1. Automatic approval because the client signed a general risk disclosure
  2. No review, because product selection is the representative's judgment
  3. Evidence that the recommendation is suitable or that the client's profile was properly updated Correct answer.
  4. Approval only if the representative personally invests in the product

Explanation

A recommendation must be suitable for the client's documented objectives and risk tolerance, or the profile must be properly updated first. A general risk disclosure does not override an inconsistent suitability profile.

Question 50Supervision of Client Accounts and Account Opening

What should a firm do when a client requests that account statements be sent to a third party's address?

  1. Obtain and document the client's written authorization for the arrangement Correct answer.
  2. Send statements without any authorization to save time
  3. Send statements to both addresses without telling the client
  4. Refuse because statements must always go to the client's home

Explanation

Directing statements to a third party can facilitate concealment, so the firm should obtain and document the client's written authorization and assess the reason for the request. Undocumented redirection removes a key control.