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Quizzes > Quizzes for Business > Finance

Challenge: Broker-Dealer Compliance Knowledge Quiz

Evaluate Your Broker-Dealer Compliance Proficiency and Knowledge Level

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting a trivia quiz on Broker-Dealer Compliance Knowledge

Are you ready to sharpen your broker-dealer compliance skills? This Broker-Dealer Compliance Knowledge Quiz offers a practical way to test familiarity with SEC regulations and AML requirements. Professionals and students alike can benefit from a thorough Compliance Knowledge Assessment that highlights areas for improvement. Questions are fully editable in the quizzes editor, so you can tailor the experience to your needs. Take this compliance quiz now to validate your regulatory expertise and discover opportunities for growth.

Which regulation requires broker-dealers to register with the SEC and FINRA before conducting business?
Sarbanes-Oxley Act
Regulation Best Interest (Reg BI)
Securities Exchange Act of 1934
Investment Advisers Act of 1940
Under Section 15 of the Securities Exchange Act of 1934, broker-dealers must register with the SEC and become FINRA members before engaging in securities transactions. This registration requirement is fundamental to broker-dealer oversight.
Under FINRA Rule 2111, a firm must have a reasonable basis to believe a recommended security is suitable for which group?
Only institutional clients
Only high-net-worth individuals
At least some investors
All retail investors
FINRA's 'reasonable-basis' suitability standard requires broker-dealers to determine that a recommendation is suitable for at least some investors. It does not require suitability for all clients or only specific segments.
Under SEC Rule 17a-4, trade blotters must be retained for at least how many years?
3 years
5 years
6 years
7 years
Rule 17a-4 requires original entry records such as trade blotters to be preserved for six years, with the first two years kept in an easily accessible location. This ensures a durable audit trail.
Under the Bank Secrecy Act, an AML program must include all the following components EXCEPT:
Independent testing of the program
Customer identification procedures
Public reporting to the general public
Ongoing employee training
AML programs must include internal controls, customer identification procedures, ongoing training, and independent testing. They do not require general public reporting as part of the program.
Which of the following forms is used by broker-dealers to report suspicious activity to FinCEN?
FinCEN Form 111 (SAR)
FinCEN Form 104 (CTR)
Form 10-Q
Form U4
Broker-dealers must file a Suspicious Activity Report using FinCEN Form 111 whenever they detect transactions that raise suspicion of money laundering or other illicit activity.
Which standard does Regulation Best Interest (Reg BI) impose on broker-dealers when making recommendations?
Acting in the customer's best interest without placing the firm's interests ahead
Suitability based on a customer's financial profile only
A fiduciary duty equivalent to investment advisers
Maximizing firm profitability while disclosing conflicts
Reg BI requires broker-dealers to act in the best interest of retail customers at the time of recommendation and not place the firm's financial interests before those of the customer.
Which of the following is a required component of an AML program under the Bank Secrecy Act?
Enhanced marketing campaigns
Annual client satisfaction surveys
Employee retirement benefits
Customer Identification Program (CIP)
The BSA mandates that broker-dealers implement a Customer Identification Program to verify and record essential customer information as part of their AML compliance framework.
A client with low risk tolerance is least likely to be suitable for which investment?
High-yield junk bonds
Treasury bills
Money market funds
Short-term municipal bonds
High-yield junk bonds carry significant credit risk and price volatility, making them unsuitable for investors who have a low tolerance for risk.
Under FINRA rules, broker-dealers must retain written customer complaints for at least how many years?
2 years
3 years
4 years
6 years
FINRA Rule 4513 requires firms to maintain records of all written customer complaints for a minimum of four years to ensure accountability and review.
What is the minimum cash transaction amount that triggers a Currency Transaction Report (CTR) under the BSA?
$10,000
$50,000
$25,000
$5,000
Transactions involving more than $10,000 in cash within a single business day must be reported on FinCEN Form 104 as a Currency Transaction Report under the BSA.
How many days after detecting suspicious activity must a broker-dealer file a SAR with FinCEN?
60 days
30 days
90 days
15 days
Broker-dealers are required by FinCEN rules to file a Suspicious Activity Report within 30 calendar days of detecting a transaction that appears suspicious.
Under SEC Rule 17a-4, electronic communications must be stored in non-erasable format and retained for at least how many years?
6 years
3 years
2 years
4 years
SEC Rule 17a-4 mandates that electronic records, including e-mails, be preserved in a non-erasable, non-rewriteable format and maintained for at least three years.
A client deposits multiple cash amounts of $9,500 in one day to avoid triggering a CTR. What term best describes this activity?
Layering
Integration
Placement
Structuring
Structuring involves breaking up transactions into smaller amounts to evade currency reporting thresholds, a common method to avoid CTR requirements.
Which FinCEN form number is used to file a Currency Transaction Report?
FinCEN Form 111
FinCEN Form 104
FinCEN Form 100
FinCEN Form 105
FinCEN Form 104 is specifically designated for reporting cash transactions over $10,000 under the Bank Secrecy Act as a Currency Transaction Report.
Under FINRA Rule 3110, how often must a broker-dealer review and update its Written Supervisory Procedures (WSPs)?
Quarterly
Biennially
Every five years
Annually
FINRA Rule 3110 requires firms to conduct an annual review of their WSPs to ensure procedures remain effective and consistent with evolving regulations.
Which statement correctly distinguishes SEC Rule 17a-3 from Rule 17a-4?
Rule 17a-3 sets record creation requirements; Rule 17a-4 sets record retention and preservation requirements
Rule 17a-3 requires customer complaints; Rule 17a-4 requires trade confirmations
Rule 17a-3 applies to AML programs; Rule 17a-4 applies to financial reporting
Rule 17a-3 governs electronic communications; Rule 17a-4 governs physical records
Rule 17a-3 outlines what records must be created by broker-dealers, while Rule 17a-4 specifies how long and in what format those records must be preserved.
Under the Bank Secrecy Act, how frequently must a broker-dealer conduct an independent audit of its AML program?
Monthly
Annually
Semi-annually
Every two years
The BSA requires broker-dealers to perform an independent audit of their AML program at least once a year to assess its adequacy and effectiveness.
In money laundering, the layering stage is best described as which of the following?
Conducting complex transactions to obscure the origin of funds
Introducing illicit funds into the financial system via deposits
Structuring transactions to avoid reporting thresholds
Reinvesting laundered money into legitimate businesses
Layering involves executing multiple complex financial transactions to disguise the source of illicit funds and break the audit trail.
When a Politically Exposed Person (PEP) opens an account, which of the following is an example of enhanced due diligence (EDD)?
Sending standard account statements
Conducting a credit check only
Obtaining senior management approval before account opening
Offering reduced fees to attract the PEP
Enhanced due diligence for PEPs often requires senior management approval and more rigorous vetting due to the higher risk associated with politically exposed individuals.
Which stage of money laundering involves reintroducing illicit funds into the legitimate economy through investments like real estate or businesses?
Structuring
Layering
Placement
Integration
Integration is the final stage of money laundering, where laundered funds are merged with legitimate assets and re-enter the economy in a seemingly lawful manner.
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Learning Outcomes

  1. Identify key SEC regulations governing broker-dealer activities
  2. Analyse potential compliance risks in client transactions
  3. Apply best practices for customer suitability assessments
  4. Evaluate recordkeeping requirements under FINRA rules
  5. Demonstrate understanding of anti-money laundering obligations
  6. Master procedures for reporting suspicious activities

Cheat Sheet

  1. SEC Recordkeeping Requirements - Imagine the SEC as a meticulous librarian who wants every trade slip and email on their shelf. Broker-dealers must keep transaction records, customer correspondences, and ledgers for specific timeframes - often three to six years - to stay compliant and dodge fines. Investor.gov Guide
  2. FINRA Rule 4511 Overview - FINRA Rule 4511 lays out the blueprint for creating and preserving books and records. By following these guidelines, firms ensure they can quickly retrieve critical data during audits or investigations. Read FINRA Rule 4511
  3. Consequences of Poor Recordkeeping - Skipping proper record maintenance can cost firms millions in settlements and reputational damage. Recent cases show regulators don't hesitate to sanction those who let texts and emails slip through the cracks. Reuters Coverage
  4. Customer Data Protection Rules - The SEC's updated cyber-rules emphasize rapid incident response and robust data safeguards. Firms must have clear plans to detect hacks, notify clients, and remedy breaches - no fudging allowed! Cybersecurity Update
  5. Suspicious Activity Reporting (SAR) - Spotting odd behavior and filing SARs is like sounding the alarm bell: it helps regulators fight fraud and money laundering. Missing a report can lead to hefty penalties and enforcement actions. FT Analysis
  6. Electronic Records & Audit Trails - Electronic files aren't enough - timestamped audit trails are a must to show who did what and when. This digital breadcrumb trail protects firms and clients by providing full transparency. CFR 17a-4 Details
  7. Customer Suitability Assessments - Recommending the wrong products can harm clients and lead to enforcement headaches. Conduct thorough suitability reviews to match investment choices with each client's goals and risk tolerance. FT Suitability Report
  8. Market Access Controls - Robust risk management and access controls keep trading madness in check. Proper safeguards prevent rogue orders and market disruptions, helping firms avoid fines like the recent $5 million penalty. Regulatory Update
  9. Compliance Monitoring & Reporting - Your compliance team is the watchdog for suspicious transactions and must report them promptly. Regular training and real-time monitoring tools ensure nothing suspicious slips by. FT Compliance Insights
  10. Preservation of Communications - Every broker-dealer email, chat message, and text must be archived under SEC rules. Keeping these records searchable ensures you can produce them on short notice. FINRA Communications Policy
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