Try 10 focused Series 14 questions on Customer and Employee Accounts, with explanations, then continue with the full Securities Prep practice test.
Series 14 Customer and Employee Accounts questions help you isolate one part of the FINRA outline before returning to a mixed practice test. The questions below are original Securities Prep practice items aligned to this topic and are not copied from any exam sponsor.
| Item | Detail |
|---|---|
| Exam | FINRA Series 14 |
| Official topic | Function 8 — Sales Practice - Customer/Employee Accounts |
| Blueprint weighting | 15% |
| Questions on this page | 10 |
A retail customer requests options trading approval and wants to place an options order immediately. The customer’s options agreement is incomplete, the Options Disclosure Document (ODD) has not yet been delivered, and no Registered Options Principal (ROP) has approved the account.
Which supervisory action is NOT appropriate under these facts?
Best answer: C
Explanation: Options trading should not occur until required documentation, ODD delivery, and ROP approval are completed and evidenced.
Options account approval is a gated process: the firm must complete the options agreement, deliver the ODD, and obtain documented ROP approval before the first options trade. An email from the representative does not substitute for required firm approval steps. The best supervisory approach is to prevent trading and use monitoring to detect and remediate any breakdowns.
A key supervisory obligation for options is ensuring trading cannot begin until the account is properly established and approved through the firm’s controls. Under the stated facts, the options agreement is incomplete, the ODD has not been delivered, and the ROP has not approved the account—so the firm should treat any options order as prohibited until those prerequisites are satisfied and recorded.
High-level controls typically include:
Informal disclosures by a representative do not replace required approvals and do not create a defensible supervisory record.
A compliance official reviews a complaint trend report and sees the following pattern:
Exhibit: Complaint log (last 60 days)
ID Branch Rep Allegation
101 017 JH Transfer-out request sat unprocessed; fees accrued
104 017 MS Transfer-out request sat unprocessed; fees accrued
109 017 RP Transfer-out request sat unprocessed; fees accrued
112 017 JH Transfer-out request not acknowledged; customer frustrated
118 017 MS Transfer-out request delayed; missed reinvestment deadline
121 017 RP Transfer-out paperwork mishandled; repeated follow-ups
Operations reports show other branches have normal transfer-out cycle times, and there is no firmwide system outage.
Which root-cause category best matches this complaint theme?
Best answer: A
Explanation: The issue is concentrated in one branch across multiple reps, indicating a local supervisory/workflow breakdown.
Because the complaints cluster in a single branch and involve multiple registered reps, the most likely root cause is a branch-specific breakdown in how transfer-out requests are handled or supervised. The absence of similar issues elsewhere and no system outage points away from a firmwide process problem.
Root-cause triage often starts by asking whether a theme is concentrated by person, location, product, or workflow. Here, the same allegation repeats across several reps but only at Branch 017, while other branches show normal cycle times and there is no firmwide system disruption. That pattern supports a branch-level failure (for example, inadequate local supervision, inconsistent use of transfer processing steps, or branch operations staffing/training issues). By contrast, a single-employee issue typically clusters around one rep, a product issue follows a specific product regardless of who sold it, and a firmwide process failure would appear across multiple branches at the same time.
Key takeaway: concentration by branch across multiple reps generally indicates a branch control/supervision problem, not an isolated individual or firmwide defect.
Which statement is most accurate regarding when penny-stock (heightened-disclosure) rules create additional account supervision requirements?
Best answer: A
Explanation: Penny-stock rules can require principal account approval plus customer risk disclosure and written transaction agreement before the first covered trade for a non-established customer.
Penny-stock rules can add specific supervisory steps before a firm effects a covered penny-stock trade for a non-established customer. These steps commonly include delivering a standardized risk disclosure, obtaining the customer’s written agreement to the transaction, and registered principal approval tied to penny-stock trading in the account.
When a transaction involves a covered (non-exempt) penny stock, broker-dealers may have heightened-disclosure obligations that go beyond normal equity processing and require additional account-level supervision—especially for non-established customers. In practice, this means the firm must ensure the customer receives the standardized penny-stock risk disclosure and that supervision evidences the customer’s affirmative agreement before the first covered transaction is effected. Firms also must evidence principal involvement (e.g., approving the account for penny-stock transactions) as part of the control framework, rather than treating penny stocks like ordinary exchange-listed equities. A common trap is assuming the trigger is only a low share price; exemptions (such as exchange-listed securities) and transaction-specific disclosures make the analysis more than just price-based.
A broker-dealer’s written AML procedures require (1) documented disposition of surveillance alerts and (2) escalation to AML Compliance when activity appears suspicious. Over several months, the AML analyst closes multiple alerts on one new retail account that receives frequent third-party wires and quickly purchases and liquidates thinly traded securities. The analyst records only “false positive” with no supporting notes, and no escalation occurs.
During a FINRA exam, the firm cannot produce evidence of review beyond the “false positive” label. What is the most likely outcome for the firm?
Best answer: C
Explanation: Inability to evidence alert review and escalation is a failure to implement AML controls, prompting remediation and potential SAR lookbacks.
FINRA will focus on whether the firm’s AML program is effectively implemented, not merely written. Closing high-risk alerts without documented analysis or escalation creates a supervisory evidence gap and raises the risk that suspicious activity was not appropriately investigated or reported. The likely consequence is an AML deficiency requiring remediation and a lookback to determine whether SAR filings were warranted.
An AML program must be reasonably designed and actually followed, with defensible records showing how alerts were investigated, resolved, and escalated when warranted. Here, the activity pattern (third-party wires, rapid in-and-out trading, thinly traded securities) is inherently higher risk, and the firm cannot evidence any meaningful review beyond a conclusory label. In an exam, that typically results in a finding that the firm failed to implement its AML procedures, along with required corrective actions such as strengthening alert documentation standards, retraining/escalation controls, supervisory attestations, and a lookback of prior alerts and transactions to determine whether any SARs should have been filed. The key issue is control execution and documentation, not whether the alert ultimately proves suspicious.
A retail customer account opened three weeks ago is now requesting a same-day liquidation of several thinly traded micro-cap positions and an outgoing wire of the proceeds to an unrelated third party overseas. During the disbursement review, the customer’s name and date of birth generate a close match to an OFAC SDN list entry, and the customer is pressuring the firm to “send it now” due to an alleged emergency. The firm’s written procedures require escalation and documented resolution before processing any transaction when an OFAC potential match is identified.
As the compliance official, what is the single best immediate action to minimize regulatory risk while satisfying the stated constraints?
Best answer: A
Explanation: A potential SDN match requires stopping processing, escalating for documented resolution, and blocking/reporting promptly if the match is confirmed.
Because there is a potential OFAC SDN match, the highest-priority risk is sanctions compliance, which requires an immediate stop to processing until the match is resolved. The best action is to place a hold, escalate per written procedures, and ensure blocking and required reporting if the match is confirmed. This also preserves evidence of supervisory review and decisioning under time pressure.
When a potential OFAC SDN match is identified, the firm should not process trades or disbursements that could transfer value until the alert is resolved under the firm’s sanctions procedures. The immediate compliance focus is to (1) stop the requested activity, (2) escalate to the designated AML/OFAC decision-maker, and (3) document the comparison and disposition (true hit vs. false positive). If the match is confirmed, the firm generally must block the property and make the required OFAC reporting; the micro-cap liquidation and third-party wire pressure also elevate AML concerns and can be evaluated in parallel after the sanctions risk is controlled. The key is sequencing: resolve the sanctions “go/no-go” decision before moving any funds or executing transactions.
A compliance officer reviews a first-time order in a new retail account to buy 25,000 shares of ABCD, quoted at $1.20 and traded OTC (not exchange-listed).
Exhibit: Customer financial profile (USD)
For this question, treat an accredited investor as a person with net worth over $1,000,000 excluding the primary residence. What additional account supervision step is required before the firm effects the trade?
Best answer: B
Explanation: Excluding the primary residence, the customer’s net worth is $480,000, so the penny-stock heightened disclosures and written agreement apply before executing.
ABCD is a low-priced OTC security, creating penny-stock heightened-disclosure obligations unless an exemption applies. The customer is not an accredited investor because net worth excluding the primary residence is $520,000 minus $40,000, or $480,000. Therefore the firm must follow the penny-stock pre-trade disclosure and written-agreement process as an added supervision requirement.
Penny-stock transactions generally require additional supervisory steps (enhanced disclosures, documented customer agreement, and supervisory review) unless the customer or transaction qualifies for an exemption such as the accredited-investor exemption. Here, the key control is determining whether the customer is accredited using the provided definition and then applying (or not applying) the heightened-disclosure workflow.
Compute net worth excluding the primary residence:
\[ \begin{aligned} \text{Other assets} - \text{Other liabilities} &= 520{,}000 - 40{,}000 \\ &= 480{,}000 \end{aligned} \]Because $480,000 is not over $1,000,000, the accredited-investor exemption is not available, so the penny-stock disclosure and signed written agreement must be obtained before effecting the trade.
Which action is generally required under SEC “penny stock” rules (creating heightened account-supervision steps) before a broker-dealer effects a non-exempt customer’s first penny stock transaction?
Best answer: D
Explanation: Penny stock rules add pre-transaction disclosure, a specific suitability finding, and a written customer agreement/acknowledgment before the first covered trade.
SEC penny stock rules impose additional steps beyond ordinary account opening and Reg BI processes. For covered transactions, the firm must provide standardized penny stock risk disclosures, make a specific suitability determination, and obtain the customer’s signed written agreement/acknowledgment before effecting the first transaction. These added steps create heightened supervisory and documentation requirements.
Penny stock rules are a heightened-disclosure regime intended to protect retail investors in higher-risk, thinly traded securities. When a transaction is covered (i.e., not exempt), the broker-dealer must follow special pre-transaction procedures that go beyond standard new-account documentation. Core supervision/evidence expectations include delivering the SEC-required penny stock risk disclosure document, making and documenting a specific suitability determination for the customer, and obtaining the customer’s signed written agreement/acknowledgment before the first covered penny stock transaction is effected. Firms typically supervise this through workflow controls (e.g., system holds, required documents, principal review) to ensure the trade cannot proceed until the required disclosures and signatures are captured and retained. By contrast, Reg BI/Form CRS, options documentation, and margin agreements are separate regimes and do not substitute for penny stock rule deliverables.
A broker-dealer’s sanctions screening tool generates two alerts:
Which documentation approach best matches the correct compliance treatment for both alerts?
Best answer: B
Explanation: A true SDN match requires blocking/reporting with documented rationale, while a false positive requires documented resolution and lifting any restriction.
Alert 1 is a confirmed SDN match, so the firm should document the identifiers supporting the match, block the property, escalate internally, and evidence any required OFAC reporting. Alert 2 is a false positive, so the firm should document the comparison that disproves the match and record the rationale for lifting any restriction and resuming normal activity.
Supervisory documentation should show a defensible rationale for why an account or transaction was restricted, who approved the decision, what steps were taken, and what evidence supports closure.
For a confirmed OFAC SDN match, the compliant treatment is to block the property/transaction and create a record that ties the decision to the matching identifiers (not just the name), the escalation/approvals, and the firm’s OFAC reporting/record-retention steps. For a false positive, the firm should document the specific non-matching identifiers reviewed (e.g., DOB, address, passport), record the decision to clear the alert, and evidence removal of any temporary restriction so future reviewers can reconstruct why activity was allowed.
The key differentiator is whether the alert is a true match versus a documented false positive.
A retail customer emails the firm’s shared service inbox after reviewing her monthly statement:
“On February 6, I see an options trade in my account that I did not authorize. Your representative never discussed this with me. Please reverse the trade and reimburse my losses. I’m considering reporting this to regulators.”
The service team plans to open a routine “account service ticket” to explain the transaction and close it once the customer is called.
From a Series 14 compliance perspective, what is the primary compliance risk/red flag in this workflow?
Best answer: B
Explanation: A written allegation of wrongdoing (unauthorized trade) must be captured, logged, and routed as a complaint for appropriate investigation and oversight.
The email is a written statement from a customer alleging wrongdoing (an unauthorized trade) and requesting remediation. That makes it a complaint, not a routine inquiry or service request. The key control concern is ensuring the firm’s intake process correctly classifies, logs, escalates, and tracks the matter through investigation and resolution.
Complaint controls start with correct intake and classification. A customer communication becomes a complaint when it alleges a problem with the firm or an associated person (for example, an unauthorized trade, misrepresentation, unsuitable activity, or improper handling) and seeks a remedy or expresses dissatisfaction in a way that requires review.
Here, the customer’s written email alleges the representative executed an options trade without authorization and asks for reversal/reimbursement. Treating it as a routine service ticket creates a supervisory gap because it can bypass required complaint logging, compliance review, investigation, trend analysis, and documented closure. The key takeaway is to design workflows so written allegations are reliably captured as complaints and routed to compliance, even when they arrive through general service channels.
You are the broker-dealer’s Compliance Officer reviewing a recent spike in customer complaints.
Exhibit: Complaint log (last 30 days, sample)
Date Branch Rep Product held Allegation
Jan 10 12 R18 ETFs/equities Transfer-out request “pending” for 12 days
Jan 13 05 R44 Mutual funds Transfer-out request “pending” for 9 days
Jan 17 12 R31 Equities Transfer-out request “pending” for 11 days
Jan 22 03 R07 Bonds Transfer-out request “pending” for 10 days
Jan 28 09 R52 ETFs Transfer-out request “pending” for 13 days
Feb 02 05 R44 Mutual funds “I wasn’t told why my transfer was delayed”
All accounts are non-discretionary, and no single rep, branch, or product dominates the complaints. Which action best aligns with durable supervisory standards and sound root-cause analysis?
Best answer: D
Explanation: The pattern is cross-branch and cross-product, indicating a likely process/control breakdown that should be analyzed through workflow mapping, evidence review, and targeted testing.
Because the complaints are consistent in allegation and spread across branches, reps, and products, the most likely root cause is a systemic process failure rather than isolated employee or product misconduct. A durable compliance response is to analyze the transfer process end-to-end, identify where delays and communications break down, and validate fixes with testing and documented closure.
Root-cause analysis starts by looking for clustering: by employee, by branch, by product, or by process step. Here, the theme (transfer-out delays and unclear status/communications) is consistent, but it does not cluster to one rep, branch, or product. That points to a process failure—such as intake/queue management, exception handling, holds/escalations, or customer notification controls.
A supervisory-standard approach is to:
Targeting individuals or labeling it product-related misses the systemic pattern and weakens supervisory accountability.
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