Module 6: Ethical Practices and Obligations

• Topic 01

  Agent Ethical Obligations

  127 questions
• Topic 02

  Client-Specific Ethical Standards

  148 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. A broker-dealer stores physical customer files in an unlocked storage room accessible to all employees. Which Regulation S-P requirement is most directly implicated?

   • A
     The anti-fraud provision under Section 101 of the USA, because the firm is engaging in deceptive practices
   • B
     The safeguards rule, which requires written policies and procedures to protect customer records from unauthorised access
     Correct answer
   • C
     The disposal rule, because the firm has failed to properly destroy outdated customer records
   • D
     The opt-out requirement, because customers have not consented to their information being accessible to all employees
   Explanation

   Regulation S-P's safeguards rule requires firms to protect customer records from unauthorised access. Leaving physical records in an unlocked, universally accessible room violates this obligation by failing to implement basic access controls. The disposal rule would apply to records that should be destroyed; the notice and opt-out requirements address disclosure rather than physical security.

2. Is a broker-dealer required to obtain a trusted contact person for all customer accounts?

   • A
     No — trusted contact persons are only required for accounts held by customers over age 70
   • B
     Broker-dealers must make a reasonable effort to obtain the name of a trusted contact person for each non-institutional customer account, but the customer is not required to provide one
     Correct answer
   • C
     Yes — accounts without a designated trusted contact person cannot be opened under FINRA Rule 4512
   • D
     Yes — a trusted contact person is mandatory for all customer accounts, including institutional accounts
   Explanation

   FINRA Rule 4512 requires broker-dealers to make a reasonable effort to obtain the name and contact information of a trusted contact person for each non-institutional customer account. However, the customer may decline to provide one, and the account may still be opened. The rule creates an obligation on the firm to ask — not on the customer to comply — and does not require institutional accounts to have a trusted contact.

3. Under NASAA Model Rules, how is a 'customer complaint' defined for purposes of complaint-handling obligations?

   • A
     Any request by a customer for a refund of commissions paid
   • B
     A written statement from a customer alleging a grievance involving the activities of a person under the broker-dealer's supervision
     Correct answer
   • C
     Any verbal expression of dissatisfaction by a customer about service quality
   • D
     A written demand for arbitration submitted to FINRA
   Explanation

   Under NASAA Model Rules (and FINRA rules), a 'complaint' is defined as a written statement from a customer alleging a grievance involving the activities of a person under the supervision of the broker-dealer. The written nature is important — verbal expressions of dissatisfaction, while worth noting, do not trigger the same formal complaint-handling obligations as written complaints.