CSC Canadian Regulatory Environment 3 â Questions and Answers
Question 1: Under National Instrument 31-103, which registration category applies to an individual who provides securities advice directly to clients?
- Dealing representative
- Advising representative (Correct answer)
- Ultimate designated person (UDP)
- Chief compliance officer (CCO)
Correct answer: Advising representative
An advising representative is registered to provide advice on securities to clients, while a dealing representative is registered to execute trades or distribute securities.
Question 2: The Know Your Client (KYC) rule requires registrants to collect all of the following client information EXCEPT:
- Investment objectives
- Risk tolerance
- Political party affiliation (Correct answer)
- Time horizon for investments
Correct answer: Political party affiliation
KYC rules require collecting investment objectives, risk tolerance, time horizon, financial situation, and other relevant personal information, but political affiliation is not a required KYC data point.
Question 3: Under suitability obligations in NI 31-103, a registrant must assess suitability:
- Only when a new account is opened
- Only when the client initiates a transaction without a recommendation
- When accepting a client order, making a recommendation, or when a material change in the client's circumstances occurs (Correct answer)
- Annually at the account anniversary date only
Correct answer: When accepting a client order, making a recommendation, or when a material change in the client's circumstances occurs
Suitability must be assessed whenever an order is accepted, a recommendation is made, the client's know-your-client information changes materially, or securities are transferred into the account.
Question 4: FINTRAC requires a Large Cash Transaction Report (LCTR) to be filed when a client conducts a cash transaction of:
- $5,000 CAD or more in a single transaction
- $10,000 CAD or more in a single transaction or series of transactions within 24 hours (Correct answer)
- $25,000 CAD or more in a single day
- $50,000 CAD or more regardless of timeframe
Correct answer: $10,000 CAD or more in a single transaction or series of transactions within 24 hours
Any cash transaction or series of cash transactions totaling $10,000 or more within a 24-hour period must be reported to FINTRAC as a Large Cash Transaction Report.
Question 5: Which FINTRAC report must be filed when a transactionâregardless of dollar amountâappears linked to money laundering or terrorist financing?
- Large Cash Transaction Report (LCTR)
- Suspicious Transaction Report (STR) (Correct answer)
- Electronic Funds Transfer Report (EFTR)
- Terrorist Property Report (TPR)
Correct answer: Suspicious Transaction Report (STR)
A Suspicious Transaction Report must be filed when there are reasonable grounds to suspect a transaction is related to money laundering or terrorist financing, with no minimum dollar threshold.
Question 6: Canada's AML '24-hour rule' requires reporting entities to:
- File an STR within 24 hours of detecting suspicious activity
- Aggregate multiple cash transactions by the same client within 24 hours to determine if the $10,000 LCTR threshold is met (Correct answer)
- Freeze a suspicious account within 24 hours of identification
- Report all electronic funds transfers within 24 hours of execution
Correct answer: Aggregate multiple cash transactions by the same client within 24 hours to determine if the $10,000 LCTR threshold is met
The 24-hour rule requires that all cash transactions conducted by or on behalf of the same client within a 24-hour window be combined; if they total $10,000 or more, an LCTR must be filed.
Question 7: Under Canadian AML regulations, a Politically Exposed Person (PEP) is best defined as:
- Any client with more than $1 million in investable assets
- A person who holds or has held a prominent domestic or foreign public function, such as a head of state, senior government official, or senior military officer (Correct answer)
- Any client convicted of a financial crime in any jurisdiction
- A non-resident client investing in Canadian publicly listed securities
Correct answer: A person who holds or has held a prominent domestic or foreign public function, such as a head of state, senior government official, or senior military officer
PEPs are individuals who hold or have held senior public positionsâsuch as heads of state, cabinet ministers, or senior military officersâbecause they are considered higher-risk for corruption and money laundering.
CSC Canadian Regulatory Environment 3
Under National Instrument 31-103, which registration category applies to an individual who provides securities advice directly to clients?