Unit study guide · NISM Series III-A
Introduction to Compliance
6 questions in this unit
What this unit covers
- What is the main purpose of a securities intermediary’s compliance function?
- A business head can delete compliance findings before the board sees them. Which governance weakness is most direct?
- A firm blocks an order before entry when mandatory approval is missing. What type of control is this?
- An end-of-day report identifies orders entered without required approvals. What type of control does the report mainly provide?
- A firm outsources account processing to a service provider. Who retains responsibility for the firm’s regulatory compliance?
- A product disclosure is technically accurate but hides a major risk in barely readable text. Clients misunderstand the risk. Which response best meets fair conduct?
Key ideas
From the practice bank · 1
What is the main purpose of a securities intermediary’s compliance function?
The compliance function helps the intermediary meet its legal, regulatory and internal obligations. Remember: Compliance supports lawful and controlled conduct of the business.
Hint Common mistake: Treating compliance as a sales approval or profit-guarantee function. Think about the function’s role within the organisation.
III-A-023From the practice bank · 2
A business head can delete compliance findings before the board sees them. Which governance weakness is most direct?
Independent escalation is weakened when the business can suppress compliance findings. Remember: Compliance needs a reporting route that cannot be blocked by the business it reviews.
Hint Common mistake: Confusing a compliance job title with actual reporting independence. Consider whether compliance can report concerns without business interference.
III-A-024From the practice bank · 3
A firm blocks an order before entry when mandatory approval is missing. What type of control is this?
The control is preventive because it stops the unapproved order before it enters the system. Remember: Preventive controls stop an error or breach before it occurs.
Hint Common mistake: Calling every computer-generated alert a detective control. Focus on when the control acts relative to the prohibited event.
III-A-025From the practice bank · 4
An end-of-day report identifies orders entered without required approvals. What type of control does the report mainly provide?
The report is detective because it identifies transactions that have already occurred. Remember: Detection should lead to investigation and correction, not merely report generation.
Hint Common mistake: Assuming an exception report prevents the events it lists. Check whether the transactions have already happened.
III-A-026From the practice bank · 5
A firm outsources account processing to a service provider. Who retains responsibility for the firm’s regulatory compliance?
The regulated firm retains accountability even when another party performs an operational task. Remember: Outsourcing work does not outsource the regulated firm’s accountability.
Hint Common mistake: Assuming a service contract transfers the intermediary’s legal duties. Distinguish delegating a task from transferring accountability.
III-A-027From the practice bank · 6
A product disclosure is technically accurate but hides a major risk in barely readable text. Clients misunderstand the risk. Which response best meets fair conduct?
The disclosure should be clear and prominent because fair communication requires a balanced, understandable message. Remember: Meaningful disclosure requires clarity as well as factual accuracy.
Hint Common mistake: Treating unreadable fine print as effective disclosure. Consider the overall message received by the client, not just literal accuracy.
III-A-028