Exam identity and use
This independent Quick Reference supports candidates preparing for the Canadian Securities Institute CSI Conduct and Practices Handbook (CPH) exam, code CPH. Use it as a compact conduct-and-compliance map: who owes what duty, what documents are required, when suitability applies, and how to spot prohibited conduct in scenario questions.
CPH answer pattern
For most scenario questions, work in this order:
- Identify the role: firm, Approved Person, Registered Representative, supervisor, branch manager, compliance, client, issuer, insider.
- Classify the issue: KYC, KYP, suitability, conflict, trading conduct, disclosure, complaint, account authority, privacy, AML.
- Apply the client-protection rule: honest and fair dealing, client interest first where required, suitability, disclosure, supervision, escalation.
- Choose the required action: document, disclose, obtain approval, refuse, escalate, reverse/correct, supervise, report, preserve records.
- Avoid exam traps: “client requested it,” “high net worth,” “family member,” “everyone does it,” or “no loss occurred” rarely cures a conduct breach.
Regulatory and conduct map
| Body / framework | Practical role in CPH questions | High-yield distinction |
|---|
| Provincial and territorial securities regulators | Administer securities legislation, registration, prospectus exemptions, enforcement powers | Securities regulation is primarily provincial/territorial, coordinated through national instruments |
| Canadian Securities Administrators (CSA) | Coordinates harmonized rules and national instruments | CSA is an umbrella group, not a single national regulator |
| Canadian Investment Regulatory Organization (CIRO) | Self-regulatory organization for investment dealers, mutual fund dealers, market integrity, member conduct, enforcement | CIRO rules can be more detailed than securities legislation; firms may also impose stricter policies |
| Universal Market Integrity Rules (UMIR) | Trading conduct on marketplaces: manipulation, client priority, best execution, short marking, frontrunning themes | UMIR focuses on market integrity, not only advisor-client suitability |
| Canadian Investor Protection Fund (CIPF) | Protects eligible client property if a member firm becomes insolvent | Not protection against market losses, bad recommendations, or normal investment risk |
| FINTRAC / AML regime | Client identification, beneficial ownership, suspicious activity, sanctions-related controls | AML is separate from suitability; a suitable investment can still be blocked by AML concerns |
| Privacy legislation and firm policies | Limits use and disclosure of client information | Spouse, family, employer, or referral source does not automatically have access |
Core duties and standards
| Duty / standard | What it requires | Exam trap |
|---|
| Honest, fair, and good-faith dealing | Act with integrity, disclose material facts, avoid deception and unfair advantage | A profitable trade can still be a breach if unauthorized, misleading, or conflicted |
| Just and equitable principles of trade | Maintain market integrity and industry standards | “No client complained” does not excuse manipulative or unfair trading |
| KYC | Know the client’s identity, financial circumstances, risk profile, objectives, time horizon, investment knowledge, and account needs | KYC is not a one-time form; it must be kept current |
| KYP | Understand products before recommending or making them available | A product approved by the firm is not automatically suitable for every client |
| Suitability | Match recommendations/actions to the client and put the client’s interest first where required | “Unsolicited” should not be used to disguise a recommendation |
| Conflict management | Identify, avoid or address, and disclose material conflicts | Disclosure alone may be insufficient if the conflict cannot be addressed in the client’s interest |
| Supervision | Reasonable review, approval, controls, escalation, and recordkeeping | Supervisors are tested on what they should have detected, not only what they actually knew |
| Confidentiality | Protect client information and use it only for proper purposes | A trusted family member is not automatically authorized |
| Gatekeeper obligation | Do not facilitate fraud, money laundering, market abuse, or unsuitable practices | A client’s insistence does not require the firm to accept improper business |
Client and account lifecycle
| Stage | Required focus | Typical documents / evidence | Common CPH issue |
|---|
| Prospecting | Fair communications, proper registration, no misleading promises | Marketing approvals, contact records | Guaranteed returns, unapproved social media, exaggerated credentials |
| Account opening | Identity, KYC, account type, authority, risk disclosure, relationship disclosure | New account application, client ID, account agreements, margin/options forms if applicable | Incomplete KYC, wrong account type, missing authority |
| Product selection | KYP, costs, risks, liquidity, tax/account impact | Product due diligence, approved product list, offering documents | Recommending complex products without understanding them |
| Recommendation/order | Suitability, disclosure, conflict review, best execution | Order ticket, rationale, pre-trade fee disclosure if applicable | Marking solicited as unsolicited; accepting unsuitable orders without escalation |
| Ongoing service | KYC updates, account review, statements, performance and fee reporting | Notes, periodic reviews, change records | Ignoring material life changes or concentration |
| Complaint/event | Prompt escalation, investigation, written response through firm process | Complaint file, trade records, notes, supervision review | Advisor personally settling or discouraging complaint |
| Account closure/transfer | Respect client instructions, resolve debit/settlement issues, preserve records | Transfer forms, residual instructions | Delaying transfer to retain assets |
KYC quick reference
KYC elements
| KYC item | What to determine | Why it matters for suitability |
|---|
| Identity and capacity | Legal identity, age/capacity, authority to act, third-party interest | Prevents unauthorized accounts, fraud, AML issues |
| Financial circumstances | Income, net worth, liquid assets, debts, cash flow, tax situation | Determines risk capacity and ability to withstand loss |
| Investment knowledge | Client’s understanding of markets, products, leverage, volatility | Complex products may be unsuitable even for wealthy clients |
| Investment objectives | Income, growth, preservation, speculation, tax planning, liquidity | Objectives drive product and portfolio selection |
| Time horizon | When funds are needed and for what purpose | Short horizon conflicts with illiquid or volatile investments |
| Risk tolerance | Client’s willingness to accept volatility/loss | Psychological willingness is not the same as capacity |
| Risk capacity | Client’s financial ability to absorb loss | A client can be willing to take risk but unable to afford it |
| Liquidity needs | Regular withdrawals, emergencies, known expenses | Illiquid securities may be unsuitable |
| Account purpose | Retirement, education, operating cash, estate, speculation | Same client may have different suitable strategies by account |
| Tax and legal constraints | Registered plan status, corporate/trust restrictions, residency | Product must fit account constraints |
| Trusted contact / vulnerability concerns | Who may be contacted in specified concern situations | Trusted contact is not trading authority |
KYC update triggers
| Trigger | Required conduct response |
|---|
| New account | Complete required KYC before trading or recommendations as required by firm rules |
| Material client change | Update KYC and reassess holdings/recommendations |
| Major market or portfolio event | Consider whether risk, concentration, leverage, or liquidity remains suitable |
| New product or strategy | Confirm both KYP and client-specific suitability |
| Transfer-in portfolio | Review transferred positions, not only new trades |
| Client becomes vulnerable or subject to exploitation concern | Follow firm procedures; consider trusted contact and permitted temporary hold process |
| Periodic review required by firm/rules | Refresh KYC, document contact attempts and client responses |
KYP and product due diligence
| Product feature | What the representative must understand | Suitability red flags |
|---|
| Structure | How return is generated; issuer/guarantor; embedded derivatives | Client cannot explain basic payoff or risk |
| Market risk | Sensitivity to equity, rate, currency, commodity, or volatility changes | Objective says capital preservation but product has high downside |
| Credit risk | Issuer/default risk, ranking, collateral, guarantees | Client assumes “income” means safe |
| Liquidity | Redemption rights, secondary market, lockups, spreads | Client needs access to funds soon |
| Costs | Commissions, embedded fees, management fees, performance fees, penalties | Costs outweigh service level or expected benefit |
| Complexity | Leverage, options, structured payoff, path dependency | Low investment knowledge or inability to monitor |
| Tax treatment | Interest/dividend/capital gain/return of capital, registered account eligibility | Client expects a tax result not supported by product |
| Concentration | Exposure to one issuer, sector, currency, strategy, or manager | Portfolio risk hidden by multiple similar products |
| Leverage | Borrowing, margin, leveraged ETF, derivatives exposure | Losses can exceed client’s comfort or capacity |
| Conflicts | Proprietary product, underwriting relationship, referral fee, compensation grid | Recommendation appears driven by compensation |
Product selection matrix
| Product / strategy | Usually tested benefit | Main conduct risks |
|---|
| Government bonds / high-grade fixed income | Income, capital preservation relative to equities | Interest-rate risk, inflation risk, credit assumptions, concentration |
| Corporate bonds / preferred shares | Higher income potential | Credit risk, liquidity, rate sensitivity, ranking, call features |
| Common shares | Growth, dividend income, voting interest | Volatility, concentration, suitability for time horizon |
| Mutual funds / ETFs | Diversification, professional management, access | Embedded costs, fund risk rating, sales charges, suitability of class/series |
| Leveraged or inverse ETFs | Tactical short-term exposure | Daily reset, compounding, high volatility, unsuitable buy-and-hold use |
| Options | Hedging, income, speculation | Complexity, expiry, leverage, margin, loss potential |
| Structured notes / principal-protected notes | Defined payoff, conditional protection | Credit risk of issuer, liquidity, complex formula, fees, opportunity cost |
| Exempt market products | Private issuer exposure, potential higher return | Limited disclosure, illiquidity, valuation uncertainty, resale restrictions |
| Alternative funds / hedge strategies | Diversification, absolute-return objectives | Leverage, shorting, derivatives, liquidity gates, strategy opacity |
| Margin / borrowing to invest | Increased exposure and potential return | Magnified loss, margin calls, interest cost, forced liquidation |
Suitability decision rules
When suitability must be considered
| Situation | Suitability focus |
|---|
| New account or new strategy | Is the account type, strategy, and risk level appropriate? |
| Recommendation to buy, sell, hold, exchange, or borrow to invest | Does the action fit KYC and put client interest first where required? |
| Client instruction to trade | Assess whether the order is suitable under applicable rules and firm policy; document concerns and escalation |
| Transfer-in of securities | Review existing positions for concentration, liquidity, risk, and account fit |
| KYC material change | Reassess portfolio and open recommendations |
| Significant market/product change | Reassess if risk profile or product characteristics materially changed |
| Fee-based account review | Is the fee arrangement reasonable for service level and trading pattern? |
Suitability factors
| Factor | Ask | Unsuitable example |
|---|
| Objective | What result is the client seeking? | Speculative options for “capital preservation” |
| Time horizon | When is money needed? | Illiquid private placement for near-term home purchase |
| Risk tolerance | What loss/volatility is acceptable? | High-volatility portfolio for conservative client |
| Risk capacity | Can the client financially absorb loss? | Leveraged strategy for client with low surplus cash |
| Investment knowledge | Does the client understand product risk? | Complex note sold as “just like a GIC” |
| Liquidity | Can client access funds when needed? | Locked-in product for emergency funds |
| Concentration | Is exposure diversified enough? | Most assets in employer stock or one sector |
| Costs | Are fees justified by benefit and service? | Fee-based account for inactive buy-and-hold client without added service |
| Reasonable alternatives | Is there a less costly or lower-risk way to meet the objective? | Recommending high-commission product when simpler product fits better |
| Account constraints | Does the account permit the strategy? | Margin/short strategy in an account where not permitted |
Solicited, unsolicited, and discretionary
| Label | Meaning | Conduct consequence |
|---|
| Solicited order | Representative recommended or influenced the trade | Full suitability and documentation of rationale expected |
| Unsolicited order | Client initiated without recommendation or influence | Do not use label to hide advice; suitability/escalation may still be required by rules and firm policy |
| Discretionary authority | Representative chooses key trade elements without client’s specific instruction | Requires proper account approval and authorization; unauthorized discretion is a serious breach |
| Time and price discretion | Client specifies security, side, and amount; representative selects timing/price execution details | Not the same as full discretionary authority |
| Managed account | Approved discretionary portfolio management arrangement | Requires appropriate authorization, mandate, and supervision |
| Order-execution-only account | Client directs trades without advice | Suitability is generally not provided, but disclosure, account appropriateness, and trading integrity still matter |
Account types and authority
| Account / authority type | Key requirement | CPH trap |
|---|
| Cash account | Client pays for purchases and delivers securities for sales by settlement requirements | Using cash account like margin without approval |
| Margin account | Client signs margin agreement; securities may secure debit; margin calls possible | Assuming client must receive advance notice before liquidation if agreement permits firm action |
| Options account | Options approval, risk disclosure, strategy limits, margin if applicable | Approving advanced strategies inconsistent with knowledge/risk capacity |
| Short account / short sale | Margin approval, borrowing/settlement controls, proper order marking | Short losses can be theoretically unlimited |
| Fee-based account | Fees suitable relative to assets, trading frequency, and service | Moving all clients to fee accounts without client-specific analysis |
| Registered plan account | Plan rules, qualified investments, tax consequences, trustee/custodian controls | Margin and short strategies are generally not appropriate/permitted in registered plans |
| Joint account | Clear ownership, signing authority, survivorship/tax treatment per jurisdiction and documents | One joint owner cannot be ignored unless authority permits |
| Corporate account | Corporate existence and authorized signing officers/resolution | Taking instructions from an unauthorized employee |
| Partnership account | Partnership agreement and authority | Partner authority may be limited |
| Trust account | Trust deed, trustee powers, beneficiaries, investment constraints | Treating trustee assets as personal assets |
| Estate account | Estate documents and executor/liquidator authority | Trading before authority is confirmed |
| Informal trust / in-trust account | Clarify beneficial ownership and trustee authority | Confusion over who the true client is |
| Power of attorney | Legal authority to act for client as specified | POA does not remove suitability and conflict duties |
| Limited trading authorization | Third party can enter trades within limits | Usually does not authorize withdrawals/transfers unless expressly permitted |
| Guarantee | Guarantor documentation and risk disclosure | Guarantor’s KYC and capacity must be assessed where relevant |
Required account documentation themes
| Document / record | Purpose |
|---|
| New account application / account form | Captures account type, KYC, risk, objectives, authority, approvals |
| Relationship disclosure | Explains services, products, suitability process, charges, conflicts, reporting, complaint process |
| Client identification records | Supports AML, tax, and account ownership controls |
| Margin agreement | Establishes borrowing, collateral, interest, liquidation rights |
| Options agreement and disclosure | Confirms approval and client acknowledgment of options risks |
| Corporate resolution / signing authority | Confirms who may bind the entity |
| Trust, estate, or partnership documents | Confirms legal authority and restrictions |
| Trading authorization / POA | Defines third-party powers |
| Notes of advice and client discussions | Evidence of suitability, disclosure, and warnings |
| Complaint file | Central record of complaint, investigation, response, and resolution |
| Supervisory approvals | Evidence that required review occurred |
Use the margin rates, loan values, or requirements provided in a question or by the applicable rule/firm policy. Do not assume a rate unless the question gives it.
Long margin account
\[
\text{Equity} = \text{Long Market Value} - \text{Debit Balance}
\]\[
\text{Required Margin} = \text{Long Market Value} \times \text{Margin Requirement}
\]\[
\text{Excess or Deficiency} = \text{Equity} - \text{Required Margin}
\]\[
\text{Loan Value} = \text{Long Market Value} - \text{Required Margin}
\]
| Price movement | Effect in long margin account |
|---|
| Security price rises | Long market value rises; equity rises |
| Security price falls | Long market value falls; equity falls; margin call risk increases |
| Debit balance rises | Equity falls |
| Required margin rises | Excess falls or deficiency increases |
Short margin account
\[
\text{Equity} = \text{Credit Balance} - \text{Short Market Value}
\]\[
\text{Required Margin} = \text{Short Market Value} \times \text{Margin Requirement}
\]\[
\text{Excess or Deficiency} = \text{Equity} - \text{Required Margin}
\]
| Price movement | Effect in short account |
|---|
| Shorted security price falls | Short market value falls; equity rises |
| Shorted security price rises | Short market value rises; equity falls; margin call risk increases |
| Credit balance rises | Equity rises |
| Short price rises sharply | Loss potential can be very large |
Margin conduct points
| Issue | Rule logic |
|---|
| Margin is borrowing to invest | Suitability must include leverage risk, interest cost, and ability to meet calls |
| Firm can impose stricter margin | House requirements may exceed regulatory minimums |
| Margin call | Client may need to deposit cash/securities or reduce position |
| Forced liquidation | Margin agreements often permit firm action to protect itself |
| Concentration | Large single-position exposure may trigger higher requirements or suitability concern |
| Registered accounts | Margin/borrowing strategies are generally constrained by plan rules |
Order handling and trade execution
| Order / concept | Meaning | Exam concern |
|---|
| Market order | Execute promptly at best available price | Price uncertainty in fast markets |
| Limit order | Execute only at specified price or better | May not fill |
| Stop order / stop-loss | Becomes active when trigger price reached | Execution price can differ from trigger |
| Day order | Expires if not filled that day | Client expectations must match order duration |
| Good-till-cancelled / open order | Remains active until cancelled or expiry under marketplace/firm rules | Must monitor corporate actions and client intent |
| Best execution | Seek most advantageous execution terms reasonably available | Not always just lowest commission; consider price, speed, certainty, total cost |
| Client priority | Client orders generally have priority over firm/pro orders where applicable | Trading ahead is a serious breach |
| Fair allocation | Allocate fills fairly using pre-established method | Cherry-picking winners for favoured clients is prohibited |
| Error correction | Correct promptly under firm process | Do not hide losses, backdate, or shift errors to clients |
| Trade confirmation | Confirms execution details, price, charges, settlement | Client must be able to verify transaction |
| Settlement | Delivery/payment must occur as required by market rules | Failing to pay/deliver can trigger restrictions |
Trading misconduct reference
| Misconduct | What it looks like | Proper response |
|---|
| Unauthorized trading | Trade entered without client instruction or approved discretion | Reverse/correct as required, report, supervise, discipline |
| Unsuitable recommendation | Product/strategy inconsistent with KYC | Do not recommend; document alternative and rationale |
| Churning / excessive trading | Trading primarily to generate commissions | Review turnover, cost-to-equity, client objective |
| Front-running | Trading before client or material order information | Prohibited; escalate and investigate |
| Insider trading | Trading while in a special relationship with issuer and possessing material non-public information | Do not trade; restrict, escalate, comply with insider controls |
| Tipping | Passing material non-public information to another person | Prohibited even if tipper does not trade |
| Market manipulation | Artificial price/volume, wash trades, spoofing/layering, high closing | Refuse orders, escalate suspicious activity |
| Misrepresentation | False or misleading statement about investment, risk, credentials, guarantee | Correct disclosure, discipline, client remediation if needed |
| Selling away / off-book transactions | Securities business outside firm books | Generally prohibited; report and supervise |
| Personal financial dealings | Borrowing/lending with clients, guarantees, private deals | Avoid or obtain required approvals only where permitted |
| Improper guarantees | Promising no loss or guaranteed performance without legal basis | Prohibited/misleading |
| Failure to disclose conflict | Compensation, issuer relationship, referral fee, proprietary product | Identify, address, disclose, and document |
| Improper use of client information | Sharing or using confidential data without authority | Privacy breach; escalate |
| Term | Practical meaning |
|---|
| Material fact | A fact that would reasonably be expected to significantly affect market price or value |
| Material change | A significant change in business, operations, or capital that would reasonably be expected to affect market price or value |
| Material non-public information | Material information not generally disclosed to the market |
| Generally disclosed | Information has been broadly disseminated and the market has had reasonable time to absorb it |
| Person in special relationship | Insider, issuer-related person, professional adviser, tippee, or other person captured by securities law concepts |
| Restricted list | Firm control list limiting trading/research due to sensitive information or conflicts |
| Watch list | Internal monitoring list; not necessarily communicated broadly |
Conflicts of interest
Conflict handling sequence
| Step | What to do |
|---|
| Identify | Recognize actual, potential, and perceived material conflicts |
| Avoid if necessary | Some conflicts cannot be managed adequately |
| Address/control | Use supervision, separation, approval, compensation controls, restricted lists |
| Disclose | Provide clear, timely, meaningful disclosure |
| Document | Keep evidence of analysis, client disclosure, approval, and outcome |
Common conflicts
| Conflict | Why it matters | Likely exam answer |
|---|
| Proprietary product | Firm earns more or has business interest | Compare alternatives; disclose conflict; recommend only if suitable |
| Underwriting relationship | Firm may be connected to issuer | Provide required issuer relationship/conflict disclosure |
| Referral fee | Payment may influence recommendation | Written arrangement, disclosure, qualified registrant for registrable activity |
| Sales contest / incentive | May bias product choice | Ensure incentive does not compromise client interest; disclose/avoid as required |
| Outside activity | Time, loyalty, reputation, or client confusion risk | Prior firm approval and ongoing disclosure/control |
| Gifts and entertainment | Influence or appearance of influence | Keep reasonable, approved, recorded; avoid quid pro quo |
| Personal relationship with client | Bias, exploitation, confidentiality issues | Escalate; avoid prohibited personal financial dealings |
| Borrowing/lending with client | Creates severe conflict and exploitation risk | Generally prohibited except narrow firm-approved exceptions if any |
| Acting as executor/trustee/POA | Control over client assets and conflict risk | Requires firm review/approval; often restricted |
| Compensation grid | Higher payout can bias recommendation | Recommendation must remain client-specific and justified |
Communications, advertising, and client reporting
| Area | Required standard | CPH trap |
|---|
| Sales communication | Fair, balanced, not misleading; risks and assumptions disclosed | Showing upside without downside |
| Performance claims | Accurate, relevant, not cherry-picked; explain assumptions | Using hypothetical returns as if guaranteed |
| Titles and credentials | Must not mislead about proficiency, authority, or specialization | Inflated titles for senior/retirement expertise |
| Social media | Business communications are subject to firm policies and recordkeeping | Personal account used to promote securities business |
| Email/text messaging | Must follow approved channels and retention rules | Off-channel advice to avoid supervision |
| Research | Conflicts and issuer relationships disclosed; independence protected | Research used to promote underwriting without disclosure |
| Client statements | Show account positions and activity as required | Statement is not a substitute for suitability review |
| Fee/charge reporting | Client should understand charges and compensation | Hidden or poorly explained embedded fees |
| Complaint information | Client informed of complaint process and external options where applicable | Advisor discourages written complaint |
Complaints and dispute resolution
| Complaint issue | Correct conduct |
|---|
| Any written or verbal allegation of misconduct | Treat seriously; report through firm process |
| Suitability, unauthorized trading, misrepresentation, fraud | Escalate promptly; preserve records; supervisory review |
| Service complaint | Still document and handle under firm procedures |
| Client asks advisor to “just fix it personally” | Do not settle privately or outside firm process |
| Advisor caused an error | Report; firm determines correction and client communication |
| Complaint about another representative | Escalate; do not suppress or handle informally |
| External dispute resolution | Inform clients of available escalation options as required |
| Litigation or regulatory inquiry | Preserve evidence and cooperate through approved channels |
Complaint file checklist
- Client allegation and date received
- Accounts, trades, products, and representatives involved
- Notes, emails, recordings, order tickets, approvals
- KYC at relevant times
- Suitability rationale and disclosures
- Supervisory review history
- Client loss/remediation analysis if applicable
- Written response and escalation outcome
AML, sanctions, and suspicious activity
| AML topic | What to know for CPH |
|---|
| Client identification | Verify identity before/while establishing relationship as required |
| Beneficial ownership | Determine who owns or controls entity accounts |
| Third-party determination | Identify whether someone other than the account holder is directing or benefiting |
| Source of funds / wealth | Higher-risk accounts may require deeper understanding |
| Politically exposed persons / heads of international organizations | Enhanced review may be required |
| Sanctions | Screen and restrict activity where required |
| Suspicious transactions | Escalate internally; do not tip off client |
| Unusual trading or transfers | May be AML, fraud, elder abuse, or market integrity issue |
| Recordkeeping | Maintain required records and evidence of review |
AML red flags
| Red flag | Possible concern |
|---|
| Client refuses normal identity or beneficial ownership information | Attempt to avoid detection |
| Frequent deposits and withdrawals with little investment purpose | Layering or movement of funds |
| Third party funds account without clear explanation | Concealed beneficial owner |
| Activity inconsistent with occupation/income/net worth | Source-of-funds concern |
| Sudden liquidation under pressure from unknown person | Exploitation or fraud |
| Client asks how to avoid reporting | Suspicious intent |
| Complex entity structure with no business rationale | Beneficial ownership concealment |
Privacy and confidentiality
| Situation | Correct approach |
|---|
| Spouse asks for account balance | Do not disclose unless authorized |
| Adult child calls about parent’s account | Use trusted contact/authority rules; do not treat as automatic authorization |
| Employer requests employee trading records | Require proper legal/client authority and firm process |
| Referral partner requests client details | Share only as disclosed/authorized and permitted |
| Client information used for outside business | Prohibited without proper authority and approval |
| Lost device or misdirected email | Report under firm privacy/security process |
| Regulator or law-enforcement request | Handle through firm legal/compliance process |
Registration, supervision, and firm controls
| Role / control | CPH focus |
|---|
| Registered firm | Responsible for policies, supervision, client disclosures, books and records |
| Approved Person / representative | Must act within registration, proficiency, and firm approval limits |
| Supervisor / branch manager | Reviews accounts, trades, complaints, outside activities, exceptions |
| Chief compliance function | Establishes and monitors compliance system |
| Ultimate designated person role | Promotes compliance culture and oversees compliance system at senior level |
| Continuing proficiency | Registrants must maintain competence for products and services offered |
| Delegation | Tasks can be delegated, but responsibility and supervision remain |
| Exception reports | Concentration, active trading, margin calls, vulnerable clients, outside activity, complaints |
| Escalation | Serious issues go to compliance/supervision, not informal handling |
| Books and records | If it is not documented, it is difficult to prove compliance |
Outside activities and personal conduct
| Activity | Why it is tested |
|---|
| Second job or business | Time commitment, conflicts, public confusion |
| Director/officer role | Fiduciary duties, conflicts, insider information |
| Private investment with clients | Conflict, selling away, undisclosed compensation |
| Referral arrangements | Must be documented and disclosed |
| Borrowing from/lending to clients | Exploitation and conflict risk |
| Gifts, bequests, executor appointments | Influence and vulnerability concerns |
| Political/community leadership | Possible conflicts or use of firm reputation |
| Social media business promotion | Registration, supervision, recordkeeping |
| Personal trading | Must not conflict with clients or misuse information |
| Concept | What it means | Trap |
|---|
| Trusted contact person | Person client permits firm to contact in specified concern situations | Not authorized to trade, withdraw, or override client instructions |
| Vulnerable client concern | Possible diminished capacity, undue influence, exploitation, fraud | Must be escalated; do not ignore because client is embarrassed |
| Temporary hold | Firm may have a process to delay certain transactions in permitted circumstances | Not a general tool to stop unsuitable trades without proper basis |
| Family pressure | May indicate exploitation even if family member appears helpful | Authority must be verified |
| Sudden risky liquidation | Could be suitability, fraud, AML, or exploitation issue | Investigate and document |
High-yield comparison table
| Do not confuse | Key distinction |
|---|
| KYC vs KYP | KYC is client knowledge; KYP is product knowledge |
| Risk tolerance vs risk capacity | Tolerance is willingness; capacity is financial ability |
| Disclosure vs suitability | Disclosure of risk does not make an unsuitable recommendation suitable |
| Unsolicited vs unsuitable | Client-initiated does not automatically remove all conduct obligations |
| Time/price discretion vs discretionary account | Time/price only is limited execution discretion; full discretion requires approval |
| CIPF vs market risk | CIPF protects eligible property on member insolvency, not investment performance |
| Complaint vs service request | Misconduct allegations require formal complaint handling |
| Trusted contact vs POA | Trusted contact can be contacted; POA can act if valid and accepted |
| Marketing approval vs compliance | Approved advertising still must be used appropriately with each client |
| High net worth vs sophisticated | Wealth does not automatically prove knowledge, suitability, or risk capacity |
| Material information vs rumour | Material non-public information triggers insider/tipping restrictions; rumours still require caution |
| Referral vs delegation | Referral introduces client/service for compensation; delegation assigns tasks but firm remains responsible |
Common CPH scenario traps
| Scenario wording | Likely issue |
|---|
| “The client signed the form without reading it.” | Disclosure and suitability still require fair explanation |
| “The client wanted higher returns.” | Need risk capacity, time horizon, liquidity, and product fit |
| “The representative knew the client for years.” | KYC still must be documented and updated |
| “The trade made money.” | Unauthorized or conflicted conduct remains a breach |
| “The representative paid the loss personally.” | Private settlement and failure to report complaint/error |
| “The product was on the approved list.” | KYP approval does not equal client suitability |
| “The client is a doctor/business owner.” | Occupation alone does not establish investment knowledge |
| “The spouse always calls.” | Need authority or consent |
| “The issuer is a firm underwriting client.” | Conflict/connected issuer disclosure and controls |
| “The advisor used personal email for convenience.” | Recordkeeping, supervision, privacy breach |
| “The client insisted on secrecy.” | AML/privacy/suspicious activity concerns |
| “The supervisor was busy.” | Inadequate supervision is not excused by workload |
| “The account was marked unsolicited.” | Facts may show recommendation or influence |
| “The client transferred in concentrated stock.” | Suitability review still required for account/holding advice |
| “The client refused to update KYC.” | Document, restrict advice/trading as required, escalate |
Fast review checklist before practice questions
- Can you separate KYC, KYP, suitability, and conflict issues in one fact pattern?
- Can you identify when disclosure is necessary but not sufficient?
- Can you distinguish unsolicited, solicited, discretionary, and time/price discretion?
- Can you calculate long and short margin equity, requirement, excess, and deficiency when rates are given?
- Can you spot unauthorized trading, churning, selling away, front-running, insider trading, and manipulation?
- Can you state why wealth, consent, or profit does not cure a conduct breach?
- Can you choose the correct first response: document, disclose, refuse, escalate, supervise, or correct?
- Can you explain why CIPF is not investment-loss insurance?
- Can you handle complaints, privacy requests, trusted contact, and AML red flags without informal shortcuts?
Practical next step
Use this Quick Reference to drill mixed CPH scenarios: for each question, write the rule category, the client harm, the required conduct response, and the documentation/supervision evidence before checking the answer.