Apply Supervisory Approval Requirements - Series 7
- What is the supervisory requirement for time-and-price discretion on an order?
- It may be accepted without written discretion if limited to the day. Regulations allow this exception for short-term flexibility without full discretionary documentation.
- Which FINRA rule governs customer account information and updating requirements?
- FINRA Rule 2090 (Know Your Customer). This rule mandates firms to gather and maintain essential facts about customers to ensure suitable recommendations.
- What is the FINRA rule that lists required customer account information and updates?
- FINRA Rule 4512 (Customer Account Information). The rule ensures firms maintain updated customer details to facilitate supervision and compliance.
- What is the supervisory requirement when a customer requests margin privileges?
- Principal approval and a signed margin agreement before margin trading. These steps ensure the customer understands margin risks and the account is suitable for borrowing.
- What is the required approval for opening an options account before options trading begins?
- Registered Options Principal (ROP) approval. ROP ensures the customer's suitability for options risks before any transactions occur.
- What is the primary purpose of principal review and approval for new accounts?
- To ensure suitability, compliance, and proper documentation before trading. Principal review verifies that the account meets regulatory standards and customer needs prior to any transactions.
- What is the supervisory concern with discretionary authority in a customer account?
- It requires written authorization and principal approval before use. This prevents misuse and ensures trades align with customer objectives under supervision rules.
- What is the required supervisory response when material customer information becomes outdated?
- Update the account records promptly and document the update. Prompt updates maintain accurate records for ongoing suitability and compliance monitoring.
- What is the supervisory requirement for reviewing customer orders and transactions generally?
- Supervisory review per written procedures under FINRA Rule 3110. The rule requires documented procedures for ongoing review to detect and prevent violations.
- Identify the approval needed before a representative may exercise discretion in a customer account.
- Principal approval of discretionary authority before discretionary trading. This ensures discretion is appropriate and supervised to safeguard customer interests.
- Find the missing supervisory step: Options trading starts before approval; what must be added?
- ROP approval (and ODD delivery) before options trading begins. Regulatory standards require these to confirm suitability and inform customers before options activity.
- Identify the required documentation to evidence trading discretion granted to a representative.
- Written discretionary authorization (limited POA) on file. It grants limited authority for trading decisions while protecting customer interests.
- What is the FINRA rule that specifies required account records and record retention standards?
- FINRA Rule 4511 (General Requirements). It mandates accurate record-keeping and retention for at least six years to support regulatory compliance.
- What customer information must be obtained at account opening under FINRA Rule 4512?
- Name, address, DOB, tax ID, employment, and account type/tax status. These details are essential for identity verification, tax compliance, and suitability under customer account rules.
- Which action requires written authorization before a firm may transfer funds to a third party?
- Third-party disbursement from a customer account. Written consent protects against unauthorized transfers and ensures compliance with anti-money laundering rules.
- Which account change typically requires a signed written request or equivalent authorization?
- Change of account registration (ownership/title). Signed authorization confirms the change and prevents fraudulent alterations to account ownership.
- Which document typically evidences a customer's agreement to the firm's terms at opening?
- The new account form (customer agreement). It formalizes the customer's acceptance of brokerage terms, including arbitration and account handling.
- Which document must be delivered at or before approval for an options account?
- The Options Disclosure Document (ODD). It informs customers of options risks and characteristics to promote informed decision-making.
- What is the key supervisory focus when approving an options account for a customer?
- Options suitability based on objectives, experience, and financial profile. Approval assesses if options align with the customer's risk tolerance and investment goals.
- Which document is typically required to add check-writing or debit card features to an account?
- Signed account feature agreement/authorization. It documents customer consent and outlines terms for added account functionalities.
- Identify the supervisory error: A rep trades on margin before a margin agreement is signed.
- Margin trading requires a signed margin agreement and approval first. Rules mandate these to disclose risks and obtain consent prior to any margin transactions.
- Identify the FINRA rule that requires firms to use reasonable diligence to know customers.
- FINRA Rule 2090. The rule obligates firms to verify customer identity and essential facts for effective suitability assessments.
- Which option best describes a red flag requiring heightened supervisory review at opening?
- Inconsistent customer information or suspicious source of funds. Such indicators suggest potential fraud or non-compliance, necessitating deeper verification.
- Which FINRA rule requires firms to have procedures to supervise activities and accounts?
- FINRA Rule 3110 (Supervision). It establishes the framework for firms to implement supervisory systems to oversee representatives and customer accounts.