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RSE practice questions: ethics and conduct
Ten RSE practice questions on ethics. CIRO IDPC Rule 1400 series covers conflict-of-interest disclosure and the materiality threshold. NI 31-103 §13.4 governs outside business activities; §13.5 prohibits personal financial dealing with clients. Most retail ethics fails are about timing of disclosure, not the existence of disclosure.
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- 1
A Registered Representative is opening a new account and is collecting KYC information. Which of the following items is NOT a required component of the client's financial circumstances under CIRO IDPC Rule 3402?
Outcome 1.2 · click for answer
A.The client's preferred political party affiliationCorrectB.Whether the client is borrowing money to investC.Net worth, including liquid and illiquid assetsD.Annual income from all sourcesIDPC Rule 3402 requires KYC to capture the client's financial circumstances, including income, liquidity needs, financial assets, liabilities, net worth, and whether the client is borrowing to invest. Political affiliation is not part of required KYC content.
- 2
A 62-year-old client states that he is 'comfortable taking high risk' but holds only $40,000 in liquid assets and intends to retire in three years. How should the Registered Representative reconcile this risk profile inconsistency?
Outcome 1.3 · click for answer
A.Recognize capacity is limited by the short horizon and modest assets, then document the resolutionCorrectB.Defer to the client's stated comfort with risk and recommend a high-risk equity portfolioC.Treat stated tolerance as controlling and disregard capacity limits from assets and time horizonD.Decline to open the account outright since the stated profile appears internally contradictoryCIRO requires the lower of risk tolerance and risk capacity to govern the suitability determination. The RR must resolve conflicts between a client's expectations (willingness) and their ability to endure loss (capacity), and document the resolution.
- 3
A Registered Representative suspects that an 80-year-old client is being financially exploited by her caregiver. The client has a Trusted Contact Person (TCP) on file. Which action is permitted under CIRO IDPC Rule 3276?
Outcome 1.6 · click for answer
A.The RR must freeze the account and refuse all instructions until the TCP signs offB.The RR may transfer full trading authority to the TCP for 30 days so she can protect the client's assetsC.The RR must call the TCP to get approval before entering any trade in the accountD.The RR may contact the TCP about exploitation concerns or to verify legal representative detailsCorrectRule 3276 permits contacting a TCP to address concerns about possible financial exploitation, mental capacity issues, or to confirm contact details for a legal representative. A TCP has no trading authority and is not a default decision-maker.
- 4
A client refuses to provide a Trusted Contact Person when opening an account. What is the Registered Representative's correct course of action under CIRO requirements?
Outcome 1.6 · click for answer
A.Document the refusal in the client file and proceed to open the accountCorrectB.Designate a firm employee as the TCP by defaultC.Open the account but bar the client from making any withdrawalsD.Refuse to open the account because a TCP is mandatoryProviding a TCP is encouraged but not mandatory. The dealer must request a TCP, and if the client refuses, the refusal must be documented in the client's records. The account may still be opened.
- 5
Which condition must be satisfied before a dealer member can place a temporary hold on a vulnerable client's account under IDPC Rule 3272?
Outcome 1.6 · click for answer
A.The dealer must first obtain the TCP's written approvalB.The dealer must secure the client's advance written consentC.The dealer must first obtain a court order authorizing itD.The dealer must reasonably believe exploitation occurredCorrectUnder Rule 3222 (Conditions for temporary holds), a temporary hold can be placed as soon as the dealer forms a reasonable belief that financial exploitation of the vulnerable client has occurred, is occurring, or has been attempted, or that the client lacks the mental capacity to make financial decisions — no advance approval, consent, or court process is a precondition. Requiring the trading conduct/compliance officer's sign-off before acting reverses the rule's intent, which lets frontline staff act quickly on reasonable belief rather than waiting on internal approval. Requiring the client's written consent defeats the purpose entirely, since a hold is meant to protect a client who may be the one being exploited or who may lack the capacity to consent. Requiring a court order confuses the temporary hold with a formal legal remedy; the rule exists precisely so dealers can intervene without going to court first.
- 6
Which statement best describes the Registered Representative's responsibility for KYC information under CIRO Rule 3402?
Outcome 1.7 · click for answer
A.The client's accountant can collect KYC by signing a formal representation letterB.KYC information stays valid permanently once the account is opened and fundedC.The RR owns KYC personally, cannot delegate it, and must keep it current over timeCorrectD.An unregistered assistant can gather KYC as long as a supervisor checks it quarterlyRule 3402 establishes that the RR holds primary responsibility for KYC, prohibits delegation of the obligation, and requires KYC be kept current through significant change updates and periodic refresh.
- 7
A new client opens a self-directed online trading account at a discount broker. Which obligation applies despite the absence of recommendations?
Outcome 1.9 · click for answer
A.Account appropriateness review, matching the account type to the firm's offering and clientCorrectB.KYC collection is waived entirely once a client selects a self-directed platformC.Suitability review of every order placed, identical to what an advised account requiresD.A trusted contact person must be obtained before the account can execute any orderUnder IDPC Rule 3402, order-execution-only accounts are exempt from suitability determination but remain subject to account appropriateness, which considers whether the account type is suitable for the dealer's offering and the client.
- 8
A client wants the Registered Representative to make trading decisions on the client's behalf without prior approval for each trade. Which account type is appropriate for this arrangement?
Outcome 1.10 · click for answer
A.Advisory account operated on the strength of a verbal trading mandate renewed monthly by phoneB.Margin account opened alongside a separately signed power of attorney formC.Discretionary or managed account, with written authorization and supervisory approvalCorrectD.Cash account carrying a standing limited trading authorization form on fileDiscretionary or managed accounts permit the firm to trade without prior client approval, but require written client authorization, RR qualifications, and head office supervisory approval per IDPC Rules.
- 9
What is the primary objective of the Relationship Disclosure document required under CIRO IDPC Rule 3216?
Outcome 1.12 · click for answer
A.To inform the client about the nature of the dealer-client relationship, products, services, fees, conflicts, and reportingCorrectB.To act as a binding contract for trading commissionsC.To document the client's risk toleranceD.To replace the need for a fund facts documentThe Relationship Disclosure provides clients with information about the dealer-client relationship, including products and services, account types, fees, conflicts, and reporting. It is a disclosure document, not a contract.
- 10
A Registered Representative is recommending a complex structured note. Which step satisfies the individual-level Know-Your-Product (KYP) obligation under IDPC Rule 3404?
Outcome 1.16 · click for answer
A.Reading the issuer's marketing brochure to summarize its key selling points for clientsB.Understanding the structure, costs, and risks, and how the note fits the client's needsCorrectC.Confirming the firm's due diligence team already approved the note for saleD.Relying on a colleague's past experience selling the same structured noteIndividual KYP under Rule 3404 requires the RR to understand the security's structure, features, initial and ongoing costs, and risks. Firm approval (firm-level KYP) is necessary but not sufficient.
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FAQ
What's an outside business activity?
Any activity a registrant performs outside the dealer that could reasonably be expected to give rise to a conflict, hold them out as part of another business, or generate income. NI 31-103 §13.4 requires written disclosure to the dealer + client where applicable.
Can I borrow money from a client?
No. Personal financial dealing under NI 31-103 §13.5 prohibits borrowing, lending, gifts beyond firm policy, and joint investment with clients (with limited exceptions for family members under firm review).
What's the gatekeeper obligation?
Registrants are expected to identify and report suspicious activity (AML, fraud, manipulation) to the dealer and to FINTRAC where reportable. Failure to escalate is a regulatory breach, not just a moral one.
Difference between suitability and fiduciary duty?
Suitability (CIRO Rule 3402) is the regulatory floor: the recommendation must be suitable given KYC. Fiduciary duty (common law) applies in specific relationships such as managed accounts and trustee roles. Confusing these two is a frequent wrong answer.
What's the conflict-of-interest disclosure timing rule?
Material conflicts must be disclosed in writing to clients before the conflict crystallizes (i.e., before the trade or recommendation). Generic boilerplate at account opening is insufficient when a specific conflict applies.