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Series 27 study materials
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Series 27 practice questions

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Question 1Financial Reporting

What is the primary regulatory objective of SEC Rule 15c3-1, the net capital rule?

  1. To prescribe the books and records a firm must keep
  2. To require sufficient liquid capital relative to obligations Correct answer.
  3. To require segregation of customer securities in a reserve account
  4. To set margin requirements for customer accounts

Explanation

Rule 15c3-1 establishes a minimum dollar amount of net capital and caps the ratio of aggregate indebtedness to net capital. The purpose is to ensure a broker-dealer holds enough liquid capital to meet its obligations to customers and creditors without disrupting the marketplace.

Question 2Financial Reporting

A broker-dealer that carries customer accounts and holds customer funds must maintain minimum net capital of at least:

  1. $500,000
  2. $250,000 Correct answer.
  3. $5,000
  4. $100,000

Explanation

Under Rule 15c3-1, a firm that receives, holds, or owes customer funds or securities must maintain net capital of at least $250,000, or a percentage of its aggregate indebtedness if that figure is higher. Lower dollar minimums apply only to firms that do not hold customer assets.

Question 3Financial Reporting

Under the standard net capital requirement, aggregate indebtedness may not exceed net capital by a ratio greater than:

  1. 20 to 1
  2. 15 to 1 Correct answer.
  3. 8 to 1
  4. 12 to 1

Explanation

Rule 15c3-1 limits aggregate indebtedness to 15 times net capital, which is why net capital must equal at least one-fifteenth of aggregate indebtedness. A firm that approaches the limit approaches a separate early-warning reporting obligation.

Question 4Financial Reporting

Under the standard net capital haircut schedule, the haircut applied to a long position in common stock is:

  1. 15% Correct answer.
  2. 30%
  3. 2%
  4. 5%

Explanation

The haircut schedule in the appendix to Rule 15c3-1 assigns a 15% haircut to common stock, reflecting market risk and the possibility of a price decline. The haircut is deducted from market value when computing net capital.

Question 5Financial Reporting

The annual audited financial report required by Rule 17a-5 must be filed with the SEC within how many days after the broker-dealer's fiscal year end?

  1. 90 calendar days
  2. 60 calendar days Correct answer.
  3. 45 calendar days
  4. 120 calendar days

Explanation

Rule 17a-5 requires the annual audited financial statements, together with the supporting reports, to be filed within 60 calendar days after the fiscal year end. The same filing generally goes to the firm's designated examining authority.

Question 6Financial Reporting

The Financial and Operational Combined Uniform Single (FOCUS) report is filed with the SEC on which form?

  1. Form BD
  2. Form X-17A-5 Correct answer.
  3. Form ADV
  4. Form 10-K

Explanation

The FOCUS report is filed on Form X-17A-5, which contains the net capital computation, the customer reserve computation, and other financial and operational data. Form X-17A-5 is filed at a frequency determined by the firm's business and capital levels.

Question 7Financial Reporting

Which financial statement reports a broker-dealer's assets, liabilities, and net worth as of a specific date?

  1. The statement of cash flows
  2. The statement of income
  3. The statement of financial condition Correct answer.
  4. The statement of changes in financial position

Explanation

The statement of financial condition is the broker-dealer's balance sheet, presenting assets, liabilities, and ownership equity at a point in time. Net worth on that statement is the starting point of the net capital computation.

Question 8Financial Reporting

Which SEC rule specifies the books and records that a broker-dealer must make and keep current?

  1. Rule 15c3-3
  2. Rule 17a-3 Correct answer.
  3. Rule 17a-4
  4. Rule 15c3-1

Explanation

Rule 17a-3 lists the records a broker-dealer must create and keep current, such as blotters, ledgers, and order tickets. Rule 17a-4 then governs how long those records must be preserved and in what form.

Question 9Financial Reporting

A broker-dealer has net worth of $600,000, qualifying subordinated loans of $100,000, non-allowable assets of $180,000, and securities haircuts of $70,000. Its net capital is:

  1. $630,000
  2. $380,000
  3. $450,000 Correct answer.
  4. $520,000

Explanation

Net capital equals net worth plus qualifying subordinated loans, minus non-allowable assets, minus haircuts. Here that is $600,000 plus $100,000, less $180,000, less $70,000, which equals $450,000.

Question 10Financial Reporting

A firm's aggregate indebtedness is $6,000,000 and it is subject to the standard 15-to-1 requirement with a $250,000 floor. Its minimum net capital requirement is:

  1. $600,000
  2. $400,000 Correct answer.
  3. $250,000
  4. $900,000

Explanation

The requirement is the greater of the $250,000 dollar minimum or one-fifteenth of aggregate indebtedness. One-fifteenth of $6,000,000 is $400,000, which exceeds the floor and therefore controls.

Question 11Financial Reporting

In its weekly reserve computation, a firm determines customer-related credits of $2,400,000 and customer-related debits of $2,050,000. The amount required to be on deposit in the special reserve bank account is:

  1. $4,450,000
  2. $2,400,000
  3. $350,000 Correct answer.
  4. $0

Explanation

The reserve requirement is total credits minus total debits, because debits represent assets held for customers that offset their claims. The excess of $2,400,000 over $2,050,000 is $350,000.

Question 12Financial Reporting

Under SEC Rule 17a-11, a broker-dealer must notify the SEC within 24 hours when its net capital falls below what percentage of its minimum requirement?

  1. 125%
  2. 150%
  3. 120% Correct answer.
  4. 110%

Explanation

Rule 17a-11 requires immediate notice when net capital drops below 120% of the required minimum, an early-warning cushion designed to give regulators advance notice of deterioration. A comparable notice obligation arises when aggregate indebtedness exceeds 12 times net capital.

Question 13Financial Reporting

Under Rule 17a-4, blotters and general ledgers must be preserved for at least:

  1. Ten years
  2. Six years Correct answer.
  3. Three years
  4. Two years

Explanation

Blotters and general ledgers must be kept for at least six years, with the first two years in an easily accessible place. Most other required records, such as communications, carry a three-year preservation period.

Question 14Financial Reporting

For a subordinated loan to be counted in a broker-dealer's net capital, the subordination agreement must:

  1. Be approved by the examining authority and meet the rule's term conditions Correct answer.
  2. Be recorded as a current liability on the statement of financial condition
  3. Be secured by customer securities held in the firm's accounts
  4. Be repayable in full on thirty days' written notice to the lender

Explanation

A subordinated loan counts toward net capital only if the agreement satisfies Rule 15c3-1's conditions and is approved by the firm's designated examining authority. Those conditions include a minimum term and limits on repayment, which keep the funds available to absorb losses.

Question 15Financial Reporting

Rule 17a-13 requires a broker-dealer to count and verify its securities positions:

  1. Once each month, with every count made without prior notice
  2. At least once each calendar quarter, with two counts a year made without prior notice Correct answer.
  3. Once each calendar year, on a date announced to personnel in advance
  4. Only when net capital falls below the early-warning threshold

Explanation

Rule 17a-13 requires a physical count and verification of securities at least once in each calendar quarter, and at least two of the counts in any 12-month period must be made without prior notice to the personnel responsible. The surprise element is intended to detect misappropriation.

Question 16Financial Reporting

On January 2 a broker-dealer pays $24,000 for a 12-month insurance policy covering the calendar year. Under accrual accounting, the insurance expense reported for January is:

  1. $24,000
  2. $22,000
  3. $2,000 Correct answer.
  4. $0

Explanation

Accrual accounting matches expense to the period benefited, so the $24,000 premium is allocated evenly across the 12 covered months. January expense is therefore $2,000, with the remaining $22,000 carried as a prepaid asset.

Question 17Financial Reporting

For purposes of the customer protection rule, a proprietary account of another broker-dealer (a PAB account):

  1. Is never included in the reserve computation under any circumstances
  2. Must always be treated exactly like retail customer accounts for reserve purposes
  3. Is excluded only if the PAB broker-dealer maintains net capital above $1,000,000
  4. May be excluded from the reserve computation if the carrying firm holds the required written PAB agreement Correct answer.

Explanation

The customer protection rule allows a carrying firm to exclude PAB accounts from the customer reserve computation when it has obtained and maintains the written agreement and satisfies the rule's related conditions. Absent those conditions, the balances must be treated as customer credits.

Question 18Financial Reporting

A firm holds a $300,000 proprietary position in common stock. The net capital deduction attributable to the position's haircut is:

  1. $15,000
  2. $60,000
  3. $45,000 Correct answer.
  4. $0

Explanation

Common stock carries a 15% haircut under the net capital rule, applied to market value. Fifteen percent of $300,000 is $45,000, which is deducted when computing net capital.

Question 19Financial Reporting

Under Rule 15c3-3, a required deposit into the special reserve bank account must be made no later than:

  1. One hour after banking opens on the second business day after the computation date Correct answer.
  2. One hour after banking opens on the first business day after the computation date
  3. The close of business on the fifth business day after the computation date
  4. The close of business on the computation date itself

Explanation

The rule permits a short administrative window after the weekly computation: the deposit must be in the special reserve account no later than one hour after the opening of banking business on the second business day following the computation date. Deposits made later leave the firm in violation.

Question 20Financial Reporting

Which of the following would reduce a broker-dealer's net capital?

  1. Declaring and paying a cash dividend to the firm's owners Correct answer.
  2. Receiving a qualifying subordinated loan from an affiliate
  3. Selling a proprietary security at a gain
  4. Depositing a customer's check into the firm's bank account

Explanation

Net capital begins with net worth, so any transaction that reduces net worth reduces net capital. Paying a cash dividend transfers firm assets to the owners and lowers net worth dollar for dollar.

Question 21Financial Reporting

A firm has net worth of $900,000, holds $500,000 of common stock, has $200,000 of non-allowable assets, and has a $300,000 qualifying subordinated loan. Its net capital is:

  1. $625,000
  2. $1,200,000
  3. $925,000 Correct answer.
  4. $1,000,000

Explanation

Start with net worth of $900,000, add the $300,000 subordinated loan, then deduct the $200,000 of non-allowable assets and the $75,000 haircut on the common stock (15% of $500,000). The result is $925,000.

Question 22Financial Reporting

In the customer reserve formula, free credit balances carried in customer accounts are treated as:

  1. A credit only when the customer is another broker-dealer
  2. An item excluded from the computation entirely
  3. A credit that increases the required deposit Correct answer.
  4. A debit that reduces the required deposit

Explanation

Free credit balances represent money the firm owes to customers, so they are credits in the reserve formula and increase the amount that must be set aside. Debits, by contrast, are customer-related assets of the firm that offset those claims.

Question 23Financial Reporting

A broker-dealer approved to operate under the alternative net capital requirement must maintain net capital of at least:

  1. The greater of $500,000 or 5% of aggregate debits
  2. The greater of $250,000 or 15% of aggregate indebtedness
  3. The greater of $250,000 or 2% of aggregate debits Correct answer.
  4. The greater of $100,000 or 2% of aggregate indebtedness

Explanation

The alternative standard replaces the aggregate indebtedness ratio with a test based on aggregate debit items, requiring net capital of at least 2% of aggregate debits subject to a $250,000 floor. Use of the alternative standard requires approval and imposes additional risk management obligations.

Question 24Financial Reporting

If a broker-dealer's net capital falls below the minimum required by Rule 15c3-1, the firm must:

  1. Notify the SEC immediately and cease most securities business Correct answer.
  2. Continue operating for up to 30 days while it prepares a remediation plan
  3. Notify its customers of the deficiency within ten business days
  4. Suspend all recordkeeping until the deficiency has been corrected

Explanation

A net capital deficiency requires immediate notice to the SEC, and the firm may not continue to conduct a securities business except to complete existing transactions and reduce its exposure. The rule is designed to stop a weakened firm from taking on new obligations.

Question 25Financial Reporting

Under generally accepted accounting principles as applied by broker-dealers, purchases and sales of securities are recorded on:

  1. The last day of the month in which the trade occurs
  2. The date cash is received or paid
  3. Trade date Correct answer.
  4. Settlement date

Explanation

Broker-dealers record securities transactions on trade date, recognizing the receivable or payable and the related position at the time the trade is executed. This convention keeps the financial statements aligned with the firm's actual market exposure.

Question 26Financial Reporting

Under the fair value hierarchy used in broker-dealer financial statements, quoted prices in active markets for identical assets that the firm can access at the measurement date are classified as:

  1. Inputs reflecting the firm's own assumptions about what market participants would use in pricing the asset
  2. Level 3 inputs
  3. Level 2 inputs
  4. Level 1 inputs Correct answer.

Explanation

The hierarchy ranks inputs by observability. Level 1 consists of unadjusted quoted prices in active markets for identical assets or liabilities that the reporting firm can access at the measurement date.

Question 27Financial Reporting

A broker-dealer receives cash from the issuance of a subordinated loan agreement that qualifies as a borrowing. In the statement of cash flows, this cash receipt is reported as:

  1. An operating activity
  2. A noncash transaction disclosed only in the notes
  3. A financing activity Correct answer.
  4. An investing activity

Explanation

Cash flows are classified by the nature of the transaction. Proceeds from borrowings, including qualifying subordinated loans, are financing activities because they represent capital raised from creditors.

Question 28Financial Reporting

A broker-dealer executes a customer's securities purchase on an agency basis and charges the customer a commission. The firm should report as revenue:

  1. The gross proceeds of the sale, with the customer's cost of the securities reported as an expense of the firm
  2. The commission charged to the customer Correct answer.
  3. Only the net gain or loss generated on the customer's position
  4. The commission reduced by any amounts the firm remits to the executing market center for handling the order

Explanation

When the firm acts as agent it does not take ownership of the securities, so gross proceeds are not its revenue. Revenue recognized is the commission earned for the service, and any amounts the firm pays to other parties for execution are reported as expenses rather than netted against revenue.

Question 29Financial Reporting

A firm using accrual accounting holds a bond that it purchased at a premium and accounts for using the effective interest method. Each period, the amortization of that premium:

  1. Increases interest income and reduces the carrying amount
  2. Reduces interest income and reduces the carrying amount Correct answer.
  3. Increases interest income and increases the carrying amount
  4. Has no effect on interest income and reduces the carrying amount

Explanation

A premium means the bond was purchased for more than its face amount, so the effective yield is lower than the stated coupon. Amortizing the premium each period lowers both the recorded interest income and the bond's carrying amount toward par.

Question 30Financial Reporting

At its reporting date, a broker-dealer's securities owned for trading have a market value $40,000 above their cost. Under the accounting practices applied by broker-dealers, how is this difference reported?

  1. The gain is reported in other comprehensive income and is not recognized in income until the securities are actually sold
  2. No gain is recognized until the securities are sold, at which time the entire gain is recorded in income
  3. An unrealized gain is recognized in income, and the securities are carried at market value Correct answer.
  4. The cost basis of the securities is increased to market value without any corresponding income statement effect

Explanation

Positions held for trading are carried at market value, and changes in market value are recognized currently in the income statement as unrealized gains or losses. The gain is not deferred until sale.

Question 31Financial Reporting

A broker-dealer holds cash in a special reserve bank account for the exclusive benefit of customers. On the firm's balance sheet, this cash is reported as:

  1. An asset of the customers that is excluded from the firm's balance sheet
  2. A separately identified restricted asset, with the related customer liability still recorded Correct answer.
  3. Unrestricted cash available for general corporate purposes
  4. An amount netted against the customer liability and therefore not reported as an asset

Explanation

Cash deposited in the special reserve account is an asset of the firm, but its use is restricted to the benefit of customers under the customer protection rule. It is presented separately as restricted cash and the customer obligations it supports remain on the balance sheet.

Question 32Financial Reporting

A broker-dealer consolidates a subsidiary in which it holds an 80% ownership interest. On the consolidated balance sheet, the 20% interest held by outside investors is reported as:

  1. A separate component of equity, apart from the parent's shareholders' equity Correct answer.
  2. An offset to the goodwill recognized in the acquisition
  3. A liability measured at the outside investors' share of the subsidiary's net assets
  4. A reduction of the subsidiary's assets before the balances are combined

Explanation

Consolidation reports the subsidiary's assets and liabilities in full and presents the outside investors' portion as a noncontrolling interest within consolidated equity. It is not a liability, and it does not reduce the subsidiary's assets or offset goodwill.

Question 33Financial Reporting

A broker-dealer changes its method of accounting for commission revenue, a change in accounting principle that is preferable under GAAP. The change should be reported:

  1. Retrospectively, by restating prior periods and adjusting opening retained earnings of the earliest period presented Correct answer.
  2. By deferring recognition of the cumulative effect until the following fiscal year
  3. By reporting the cumulative effect of the change in current-year income from continuing operations
  4. Prospectively, applying the new method only to transactions occurring after the date of the change, with disclosure

Explanation

A change in accounting principle is applied retrospectively: prior periods presented are restated as though the new method had always been used, and the cumulative effect is charged or credited to opening retained earnings of the earliest period presented.

Question 34Financial Reporting

At its balance sheet date a firm carries a receivable from a customer. Before the financial statements are issued, the customer files for bankruptcy, and the firm concludes the receivable is uncollectible and that the customer's deteriorating condition existed at the balance sheet date. The firm should:

  1. Disclose the bankruptcy in the notes without recording any loss
  2. Record the loss in the financial statements for the year ended on the balance sheet date Correct answer.
  3. Restate the prior year's financial statements before recording the loss for the current year
  4. Recognize the loss only in the following year's financial statements

Explanation

When a condition existing at the balance sheet date becomes known before the statements are issued, the event confirms a condition that existed at the reporting date and the statements are adjusted. The loss is therefore recognized in the year ended on the balance sheet date.

Question 35Operations, General Securities Industry Regulations, and Preservation of Books and Records

Under SEC Rule 17a-4, a broker-dealer must preserve its blotters (records of original entry) for what minimum period?

  1. Ten years
  2. Two years
  3. Six years Correct answer.
  4. Three years

Explanation

Rule 17a-4(a) requires records of original entry, including blotters, to be preserved for not less than six years, with the first two years kept in an easily accessible place. The six-year period runs from the date the record was made.

Question 36Operations, General Securities Industry Regulations, and Preservation of Books and Records

Under SEC Rule 17a-4, memoranda of brokerage orders (order tickets) must be retained for what minimum period?

  1. Four years
  2. Six years
  3. Three years Correct answer.
  4. One year

Explanation

Rule 17a-4(b)(1) requires order tickets to be preserved for three years, the first two of which must be in an easily accessible place. The shorter period reflects the fact that order tickets support, but do not replace, the blotter.

Question 37Operations, General Securities Industry Regulations, and Preservation of Books and Records

A broker-dealer has a December 31 fiscal year end. By when must its annual audited financial statements be filed with the SEC under Rule 17a-5?

  1. Within 90 days of fiscal year end
  2. Within 60 days of fiscal year end Correct answer.
  3. Within 45 days of fiscal year end
  4. Within 30 days of fiscal year end

Explanation

Rule 17a-5(d)(3) requires the annual audited financial statements and supporting schedules to be filed within 60 days after the fiscal year end. The audit must be performed by an accountant registered with the PCAOB.

Question 38Operations, General Securities Industry Regulations, and Preservation of Books and Records

A broker-dealer's surveillance system flags unusual wire activity on March 3. After completing its review, the firm concludes the activity is suspicious. By when must the Suspicious Activity Report be filed?

  1. Within 20 calendar days of detection
  2. Within 45 calendar days of detection
  3. Within 10 calendar days of detection
  4. Within 30 calendar days of detection Correct answer.

Explanation

A SAR generally must be filed no later than 30 calendar days after the date the firm initially detects facts that may constitute a basis for filing. If no suspect is identified, the period may be extended to 60 calendar days.

Question 39Operations, General Securities Industry Regulations, and Preservation of Books and Records

A customer deposits $14,000 in cash into a brokerage account. Which filing is required for this transaction?

  1. A Currency Transaction Report Correct answer.
  2. A Currency and Monetary Instrument Report
  3. A Suspicious Activity Report
  4. A Form 8300

Explanation

Financial institutions must report transactions in currency exceeding $10,000 in a single business day on a Currency Transaction Report. The filing is made with FinCEN, generally within 15 calendar days after the transaction date.

Question 40Operations, General Securities Industry Regulations, and Preservation of Books and Records

How frequently must a carrying broker-dealer compute the customer reserve formula required by Rule 15c3-3?

  1. Daily
  2. Monthly
  3. Weekly Correct answer.
  4. Quarterly

Explanation

Rule 15c3-3(e) requires the reserve formula to be computed as of the close of the last business day of each week. Any required deposit must then be placed in the special reserve bank account within the time permitted by the rule.

Question 41Operations, General Securities Industry Regulations, and Preservation of Books and Records

A broker-dealer carries customer accounts and holds customer funds. Its minimum net capital requirement under Rule 15c3-1 is generally which of the following?

  1. $25,000
  2. $5,000
  3. $100,000
  4. $250,000 Correct answer.

Explanation

Under Rule 15c3-1(a)(1)(i), a broker-dealer using the aggregate indebtedness standard must maintain net capital of at least $250,000 or one-fifteenth of aggregate indebtedness, whichever is greater. The $5,000 figure applies only to certain limited categories of firms.

Question 42Operations, General Securities Industry Regulations, and Preservation of Books and Records

Under Rule 15c3-1, a broker-dealer subject to the aggregate indebtedness standard may not let aggregate indebtedness exceed what multiple of net capital?

  1. 8 to 1
  2. 10 to 1
  3. 12 to 1
  4. 15 to 1 Correct answer.

Explanation

Rule 15c3-1 requires that aggregate indebtedness not exceed 1500% of net capital, expressed as a 15-to-1 ratio. A firm that cannot comply with the ratio must maintain net capital at a higher level under the alternative standard.

Question 43Operations, General Securities Industry Regulations, and Preservation of Books and Records

Which statement about a subordinated loan agreement used to satisfy net capital requirements is accurate?

  1. It ranks ahead of general creditors in a liquidation
  2. Prepayment requires approval if net capital would fall below the minimum Correct answer.
  3. The lender may demand repayment at any time without restriction
  4. It must have an initial term of no more than six months

Explanation

Subordinated loans must be subordinated to all claims of other creditors, must have an initial term of at least one year, and may be prepaid only with regulatory approval where repayment would reduce net capital below the required minimum or the early warning level.

Question 44Operations, General Securities Industry Regulations, and Preservation of Books and Records

After computing its weekly customer reserve formula, a broker-dealer determines that a deposit is required. When must the funds be placed in the special reserve bank account?

  1. Within one hour after banks open on the tenth business day after
  2. Before the close of business on the computation date itself
  3. Within one hour after banks open on the second business day after Correct answer.
  4. Within five business days after the computation date

Explanation

Rule 15c3-3(e)(3) requires the required deposit to be made no later than one hour after the opening of banking hours on the second business day following the computation date. This short window keeps the reserve aligned with current customer obligations.

Question 45Operations, General Securities Industry Regulations, and Preservation of Books and Records

A broker-dealer that computes a customer reserve formula must file FOCUS Report Part IIA within how many business days after each month-end?

  1. 5 business days
  2. 30 business days
  3. 10 business days
  4. 17 business days Correct answer.

Explanation

FOCUS Report Part IIA is filed monthly, within 17 business days after the end of each month. Part IIA reports the reserve computation and the amount held in the special reserve bank account.

Question 46Operations, General Securities Industry Regulations, and Preservation of Books and Records

How often must a member firm report its short positions in reported securities to FINRA?

  1. Monthly, as of the last business day of the month
  2. Twice monthly, on the 15th and last business day Correct answer.
  3. Quarterly, as of the last business day of the quarter
  4. Weekly, as of each Friday's close

Explanation

FINRA Rule 4560 requires members to report short interest positions twice each month, as of the settlement date of the 15th and the settlement date of the last business day of the month. The reports are used to publish consolidated short interest data.

Question 47Operations, General Securities Industry Regulations, and Preservation of Books and Records

A firm stores required books and records electronically. Under Rule 17a-4(f), the storage system must provide which of the following?

  1. An audit trail, an index, and readily downloadable records Correct answer.
  2. Real-time replication to a Commission system
  3. Paper duplicates stored at an off-site location
  4. Encryption keys held solely by a registered principal

Explanation

Rule 17a-4(f) requires electronic records to be preserved in a non-rewriteable, non-erasable format, with automatic quality verification, serialization, an index, an audit trail, and the ability to readily download the records. A designated officer must also certify compliance with the rule's requirements.

Question 48Operations, General Securities Industry Regulations, and Preservation of Books and Records

Under Regulation S-P, when must a broker-dealer deliver its initial privacy notice to a customer?

  1. When the customer relationship is established Correct answer.
  2. Annually, with the first account statement
  3. Within 30 days after the account is opened
  4. Only when the customer requests a copy

Explanation

Regulation S-P requires clear and conspicuous notice of the firm's privacy policies and practices at the time the customer relationship is established. The notice must describe the categories of information collected and how it may be shared.

Question 49Operations, General Securities Industry Regulations, and Preservation of Books and Records

Records of funds transfers of $3,000 or more must be retained by a broker-dealer for what period?

  1. Four years
  2. Three years
  3. Five years Correct answer.
  4. Two years

Explanation

Rule 17a-8 incorporates the Bank Secrecy Act recordkeeping rules, which require records of funds transfers of $3,000 or more to be retained for five years. The records support AML monitoring and regulatory examination.

Question 50Operations, General Securities Industry Regulations, and Preservation of Books and Records

How often must a broker-dealer's anti-money laundering program be independently tested?

  1. Only when requested by the SEC
  2. At least every 24 months
  3. At least every 36 months
  4. At least every 12 months Correct answer.

Explanation

FINRA and Bank Secrecy Act rules require an independent test of the AML compliance program at least annually, conducted by personnel independent of the AML function. The results must be reported to senior management.