Anti-Money Laundering, Fraud, and Ethical Conduct
This domain tests the controls that keep dirty money and dishonest conduct out of the market: customer due diligence, beneficial ownership, reporting obligations, and the specific statutory offences a registered representative can commit. Items are often scenario-based - you are shown behaviour and asked to name the violation.
AML controls
- Customer due diligence at onboarding and on an ongoing basis; identify the beneficial owner (generally anyone holding 25% or more), screen politically exposed persons, and apply enhanced measures to high-risk relationships.
- Large-transaction reports: cash of 50,000 yuan (or USD 10,000 equivalent) or more in a day; individual non-cash transfers of 500,000 yuan (USD 100,000); corporate non-cash transfers of 2,000,000 yuan (USD 200,000).
- Suspicious transactions must be reported to the AML monitoring centre, without tipping off the customer. Identity and transaction records are kept at least five years.
Market misconduct
- Insider trading: trading on material non-public information, or passing it on. Remedies include disgorgement and a fine of one to ten times the illegal gain, or 500,000 to 5,000,000 yuan where there is no gain; the Criminal Law also applies.
- Market manipulation: continuous trading, wash trades, pre-arranged trades, spoofing (虚假申报), pump-and-dump, and exploiting information advantages.
- Front-running client orders (老鼠仓), misappropriation of client assets, unauthorized trading, churning, selling away and unlicensed advisory services are all prohibited.
Worked example
A representative learns from a client who sits on a listed company's board that an unannounced acquisition is imminent, buys the stock in a relative's account, and tells two colleagues.
Reasoning: the information is material and non-public, and the source carries a duty of confidence, so the purchase is insider trading. Telling colleagues makes them tippees and creates a separate violation. The representative must not trade, must escalate to compliance, and cannot rely on the relative's account as a shield - control and benefit are what matter. Sanctions run from disgorgement plus multiples of profit to criminal liability.
Traps that cost marks
- Thinking AML obligations end at onboarding.
- Treating a suspicious-transaction report as something to discuss with the client.
- Confusing spoofing (placing and cancelling to mislead) with legitimate order cancellation.