FINRA Series 6 Free Practice Questions Quiz 4

Financial institutions and banks are required to implement Anti-Money Laundering Compliance Programs as part of the Bank Secrecy Act. A number of factors are considered in the development of each institutions compliance program, including the products and services it offers, customer demographics, and geographical locations, among others.

One component of an effective Anti-Money Laundering Compliance Program is an effective Customer Information Program, under which the financial institution gathers data to ensure that it knows the true identify of each of its customers. The information that they collect on customers includes, at a minimum, the customer’s name, date of birth, address, and identification number (such as a Social Security number).

The information that the financial institution collects on customers includes, at a minimum, the customer’s name, date of birth, address, and identification number (such as a Social Security number). The institution must use some current form of identification of the customer to verify this information, such as a driver’s license or passport. In the case of an institutional account, incorporation or trust documents may be used.

Financial institutions are required to file Suspicious Activity Reports (or SARs) whenever they observe transactions or trends in customer’s accounts that lead them to believe that the customer is involved in money laundering, tax evasion, fraud, or other illegal financial activities. These reports help regulators and law enforcement officials to not only pursue and prosecute individual cases, but also to compile data and analyze trends across the entire financial industry.

SARs typically include the following information:
1.Who is conducting the suspicious activity?
2.What instruments or mechanisms are being used to facilitate the suspect’s activity?
3.When and where did the suspicious activity take place?
4.Why is the activity in question suspicious?
5.How did the suspicious activity occur?

Cash accounts are the most common types of brokerage accounts. They are used by most investors for their simplicity and low risk as an account type. Cash accounts are acceptable accounts for all investor types. Gains in cash accounts are limited by the amount of capital available to the investor.

Margin accounts are accounts whereby investors have access to loanable funds, or leverage. The loanable funds are used to magnify gains but have the potential to magnify losses. Investors have the potential to increase the gain in margin accounts by borrowing extra capital to invest and paying it back from the extra gains earned from the extra capital invested.

Margin accounts are accounts whereby investors have access to loanable funds, or leverage. The loanable funds are used to magnify gains but have the potential to magnify losses. Only sophisticated and experienced investors who understand the implications of margin accounts and seek speculative gains should use margin accounts.

The settlement date in securities trading is the day that the trades actually settle, or securities change hands, as opposed to the execution date, which is the day the trade goes through. If a trade’s settlement date is one business day after the execution date, then T + 1 applies; if two days, then T + 2; and if three days, then T + 3.

The declaration date is the date on which the payment of a dividend is announced. Included in the announcement will be the amount of the dividend per share, the ex-dividend date, and the payment date.