Series 6 Supervisory Approvals for Accounts practice questions

Correct answer: C. ABLE accounts are municipal fund securities, supervised under the municipal dealer framework by a Series 51 or Series 53 principal. ABLE accounts sit alongside 529 plans and LGIPs in the municipal fund securities category for Series 6 supervision purposes.

Why not the others?
- A (Supervision by a Series 26 principal under the investment-company and variable-contracts framework.): ABLE accounts are municipal fund securities, not investment-company products. Series 26 does not cover municipal fund securities supervision.
- B (Supervision by the firm's outside auditor as part of the annual financial audit.): Outside auditors perform financial statement audits, not product-specific supervisory review. ABLE account supervision is performed at the dealer by a qualified municipal principal.
- D (Supervision by the Internal Revenue Service (IRS) based on the ABLE account's tax advantages.): Tax advantages for ABLE accounts are administered under federal tax rules, but the supervisory review of the dealer's sales activity is a municipal dealer function, not an IRS function.

Correct answer: A. The firm must satisfy all three frameworks simultaneously. General FINRA supervision covers the firm's overall supervision and all lines of business; FINRA supervisory controls test that supervision; and the municipal dealer framework covers the 529 plan side with Series 51 or Series 53 principal qualification.

Why not the others?
- B (Only the municipal dealer framework needs to be followed because 529 plans are the most heavily regulated product in the mix.): Municipal dealer framework compliance does not substitute for FINRA supervisory obligations on mutual funds and variable annuities. All three frameworks apply.
- C (Only the general FINRA supervision framework needs to be followed because it encompasses municipal supervision and internal testing.): General FINRA supervision does not encompass municipal-specific supervision or the FINRA supervisory control framework's testing. All three frameworks apply as complementary layers.
- D (Only the FINRA supervisory control framework needs to be followed because it already tests compliance with the other frameworks.): The FINRA supervisory control framework tests the firm's supervisory procedures but does not substitute for those underlying procedures. The general FINRA and municipal dealer frameworks still apply.

Correct answer: A. Delivery-side controls require verification of customer identity and address and confirmation of the delivery instruction, especially for wire transfers or ACH to third parties. These controls are the fraud-prevention half of the physical-asset supervisory process.

Why not the others?
- B (A secondary signature from a state insurance commissioner.): State insurance commissioners are not involved in routine customer-delivery controls. The controls are firm-side identity and instruction-verification steps.
- C (A 72-hour waiting period between request and delivery.): No generic 72-hour waiting period applies before every delivery. The required controls are identity verification and instruction confirmation.
- D (Direct customer confirmation via a social media message.): Social media confirmation is not a firm-side delivery control. The rule contemplates identity verification and instruction confirmation through the firm's established channels.

Correct answer: B. The safe harbor authorizes a temporary hold when the firm reasonably believes financial exploitation has occurred, is occurring, has been attempted, or will be attempted. Notice to authorized parties and, if available, the trusted contact must be provided no later than two business days after the hold is placed, and the firm must conduct an internal review.

Why not the others?
- A (Must process the wire because the customer is the account holder and has given the instruction.): The account-holder instruction is not the end of the inquiry when the firm reasonably believes financial exploitation has occurred, is occurring, has been attempted, or will be attempted. The safe harbor authorizes a temporary hold in exactly this kind of fact pattern.
- C (Must close the account permanently within 48 hours.): Permanent closure within 48 hours is not the required response. The framework contemplates a temporary hold with internal review and specific notice obligations, not automatic permanent closure.
- D (May place a permanent block on the account with no notice obligation.): Permanent blocks without notice do not fit the safe harbor. The hold is temporary, subject to specific time limits, and notice must be provided to authorized parties and the trusted contact within two business days.

Correct answer: B. OSJs and supervising branches (any branch office that supervises one or more non-branch locations) are on the annual cycle. Non-supervising branches and non-branch locations are on the three-year cycle.

Why not the others?
- A (Every branch office, regardless of its supervisory function.): Not every branch office is on the annual cycle. Only OSJs and supervising branches are annual; non-supervising branches are on the three-year cycle.
- C (Non-branch locations with regular customer foot traffic.): Non-branch locations are on the three-year cycle presumption, not an annual cycle, regardless of customer foot traffic.
- D (Only the firm's main office.): The main office is not the only annual-cycle office. All OSJs and supervising branches are on the annual cycle.

Correct answer: C. No change in account name or designation may be made unless authorized by a qualified and registered principal personally informed of the essential facts relied upon, with written approval. The principal cannot rubber-stamp the change based on a summary slip.

Why not the others?
- A (The principal may approve the change based on the rep's verbal summary of the circumstances.): A verbal summary does not satisfy the requirement. The principal must be personally informed of the essential facts and document approval in writing.
- B (The principal may approve the change after a mechanical review of the form without knowing the essential facts.): A mechanical form review is insufficient. The rule requires the principal to be personally informed of the essential facts relied upon before approving a change in account name or designation.
- D (The change may proceed without principal approval as long as one of the original joint holders consents in writing.): Joint holder consent does not substitute for the required principal approval. A change in account name or designation must be authorized by a qualified and registered principal.

Correct answer: C. WSPs are not boilerplate; they must be reasonably designed for the firm's actual business. Omitting procedures for a line of business the firm actually conducts is a supervisory deficiency even if the rest of the WSPs look thorough.

Why not the others?
- A (Satisfies supervisory requirements because its WSPs are comprehensive for the transactions they address.): Comprehensiveness for some products does not cure a gap for another line of business. The standard requires WSPs reasonably designed for the firm's actual business.
- B (Satisfies supervisory requirements because variable annuity replacements are governed by state insurance law rather than FINRA rules.): Variable annuity exchanges and replacements are subject to FINRA supervision in addition to any state insurance requirements. WSPs must still address them.
- D (Has a deficient supervisory system only if a variable annuity replacement has already been executed without documentation.): The deficiency exists at the WSP level, not only after a transaction occurs. A firm is required to have reasonably designed procedures in place for every line of business it actually conducts, regardless of whether a particular transaction has happened yet.

Correct answer: D. Inspector independence requires the inspector not to be assigned to that location and generally not to report to someone assigned there. A branch manager inspecting their own branch fails that independence test.

Why not the others?
- A (Acceptable, because the branch manager is most familiar with the branch's activities.): Familiarity is the problem, not the solution. The inspection-independence rule prevents self-review because someone assigned to the office is not a neutral inspector.
- B (Acceptable, as long as the branch manager prepares a written report.): A written report does not cure the self-review defect. The inspection cannot be performed by someone assigned to that location.
- C (Acceptable, provided a second manager co-signs the inspection report.): A second co-signer does not cure the core independence defect. The inspection generally cannot be performed by someone assigned to that office in the first place.