IFC The Know Your Client Process 2 — Questions and Answers
Question 1: Under IIROC and MFDA rules, how frequently must a dealer member update a client's KYC information at minimum?
- Every 6 months
- Annually (Correct answer)
- Every 3 years
- Only when the client requests it
Correct answer: Annually
Dealer members must update KYC information at least annually to ensure client information remains current and accurate.
Question 2: A client refuses to provide income information during the KYC process. What is the most appropriate course of action for the registered representative?
- Open the account and note the refusal in the file (Correct answer)
- Decline to open the account entirely
- Estimate the income based on occupation
- Report the client to FINTRAC immediately
Correct answer: Open the account and note the refusal in the file
A registrant may open the account while documenting the client's refusal, though this limits the suitability assessment that can be performed.
Question 3: Which of the following best describes 'investment knowledge' as a KYC factor?
- The total value of a client's investment portfolio
- The client's understanding of how various financial instruments work (Correct answer)
- The number of years a client has held investments
- The client's formal educational credentials
Correct answer: The client's understanding of how various financial instruments work
Investment knowledge refers to the client's understanding and familiarity with financial instruments, not tenure or credentials alone.
Question 4: A client's risk tolerance questionnaire indicates 'conservative,' but the client verbally insists on buying high-risk equities. What should the representative do?
- Follow the verbal instruction and override the questionnaire
- Refuse to process any transaction until the questionnaire is updated
- Document the discrepancy and discuss it with the client before proceeding (Correct answer)
- Contact the compliance department and freeze the account
Correct answer: Document the discrepancy and discuss it with the client before proceeding
The representative should flag the inconsistency, discuss it with the client, and update the KYC file if the client's true risk tolerance has changed before executing the trade.
Question 5: Which life event would most likely trigger an immediate KYC review outside of the regular update cycle?
- A client changes their email address
- A client retires and their income drops significantly (Correct answer)
- A client moves to a different province
- A client adds a beneficiary to their RRSP
Correct answer: A client retires and their income drops significantly
Retirement causing a significant income reduction materially changes a client's financial situation and risk capacity, requiring an immediate KYC update.
Question 6: What does 'time horizon' refer to in the KYC context?
- The length of time a client has been with the firm
- The period over which a client expects to hold investments before needing the funds (Correct answer)
- The deadline by which a client must file their tax return
- The number of years until the client reaches the age of 71
Correct answer: The period over which a client expects to hold investments before needing the funds
Time horizon is the expected length of time a client plans to invest before needing to access the funds, which directly influences suitable product selection.
Question 7: Under Canadian securities regulation, who bears ultimate responsibility for ensuring that KYC information is collected and kept current?
- The client
- The registered representative
- The dealer member firm (Correct answer)
- The relevant self-regulatory organization
Correct answer: The dealer member firm
The dealer member firm bears ultimate regulatory responsibility for maintaining current and accurate KYC records for all client accounts.
IFC The Know Your Client Process 2
Under IIROC and MFDA rules, how frequently must a dealer member update a client's KYC information at minimum?