Ethics and Professional Conduct Flashcards
7 cards from real CSC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics and Professional Conduct flashcards as text
What is the primary purpose of the 'Know Your Client' (KYC) rule under Canadian securities regulations?
Answer: To ensure registrants understand clients' financial situation, investment objectives, and risk tolerance before making recommendations
The KYC rule requires registrants to gather sufficient information about a client's financial situation, investment knowledge, objectives, and risk tolerance to ensure any recommendations are suitable for that specific client.
Which of the following best describes a fiduciary duty in the context of financial advising?
Answer: A legal obligation to act in the best interest of the client, placing the client's interests above one's own
A fiduciary duty requires the advisor to put the client's interests first and avoid conflicts of interest, representing the highest standard of care in financial services.
Under Canadian securities regulations, what is 'churning'?
Answer: Excessive trading in a client's account primarily to generate commissions rather than to serve the client's interests
Churning is the unethical and often illegal practice of excessive trading in a client's account to generate commission income for the advisor, regardless of whether the trades benefit the client.
What does 'suitability' mean when an investment advisor makes a recommendation?
Answer: The recommendation must be appropriate for the specific client based on their KYC information including objectives, time horizon, and risk tolerance
Suitability means that any investment recommendation must align with the client's individual circumstances, including their financial goals, investment knowledge, time horizon, and risk tolerance gathered through the KYC process.
When a conflict of interest exists between a registrant and their client, what is the registrant's primary obligation?
Answer: To disclose the conflict to the client and address it in the client's best interest
Registrants must disclose material conflicts of interest to clients and take steps to ensure the conflict is addressed in a manner that prioritizes the client's best interests.
Which Canadian regulatory body sets conduct standards for investment dealers and their registered representatives?
Answer: The Canadian Investment Regulatory Organization (CIRO)
CIRO (formerly IIROC) is the national self-regulatory organization that sets and enforces conduct and financial standards for investment dealers and their registered representatives in Canada.
What is the purpose of the Client Relationship Model (CRM) reforms under Canadian securities regulations?
Answer: To improve transparency by requiring firms to clearly disclose fees, conflicts of interest, and investment performance to clients
CRM reforms require investment firms to provide clients with clear disclosure of fees charged, conflicts of interest, and annual performance reports to enhance transparency and investor protection.