Chapter 7 - Development of Policies and Procedures (v1.2)

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Questions and Answers

What must dealer members ensure regarding employees' understanding of written policies?

Written policies do not require employee comprehension.

All employees and Approved Persons must understand their responsibilities under the policies. (correct)

Only Approved Persons need to understand the policies.

Understanding policies is optional for part-time employees.

Which of the following is a key consideration in developing policies and procedures?

The aesthetic quality of the document.

The personal opinions of the chief compliance officer.

The necessary information technology requirements for implementation. (correct)

The popularity of similar policies in other organizations.

What is one of the functions of the chief compliance officer in relation to policies?

They typically approve all policies addressing securities regulations. (correct)

They solely monitor employee training without engaging in policy development.

They must write all policies personally.

They delegate all decision-making to department heads.

Why is it important for a policy and procedures manual to be an evolving document?

To ensure alignment with the evolving environment of the securities industry. Signup and view all the answers

Which aspect is NOT typically considered when developing policies and procedures?

The color scheme of the policy document. Signup and view all the answers

Who may be responsible for operational controls in a dealer member firm?

The chief financial officer. Signup and view all the answers

What is required after changes in applicable laws regarding written policies?

Changes must be communicated to all relevant personnel. Signup and view all the answers

What question is essential to address when creating policies and procedures?

What are the staffing requirements for implementation? Signup and view all the answers

Which of the following best describes the nature of policies and procedures at a dealer member?

They are dynamic and should be updated as needed. Signup and view all the answers

What aspect of document retention is highlighted for dealer members?

Electronic mail is included in the retention obligation. Signup and view all the answers

What must a dealer member with retail client accounts do according to IDPC Rule section 3945?

Maintain daily and monthly supervision policies for trading. Signup and view all the answers

Which of the following statements best describes CIRO's role regarding policies and procedures?

CIRO provides guidance but does not review policies prior to implementation. Signup and view all the answers

What is a common reason for including a statement regarding prohibited activities in a policy manual?

To alert employees about prohibited conduct. Signup and view all the answers

What distinguishes a policy from a procedure in the context of CIRO regulations?

Policies define the risks addressed; procedures describe the operational steps. Signup and view all the answers

What action can CIRO take if serious gaps are found in a firm's policies and procedures during a review?

Require the firm to rectify the identified gaps. Signup and view all the answers

What should a policy manual clearly state if a firm does not engage in a particular regulated activity?

No further policies are needed for that activity. Signup and view all the answers

What aspect of policies is emphasized by CIRO when reviewing a firm's operations?

The relationship of policies to regulatory requirements. Signup and view all the answers

According to CIRO guidelines, what is considered a prudent practice for firms?

Clearly specifying which businesses are engaged and which are not. Signup and view all the answers

What is a requirement for firms regarding policies covering specific processes?

They should outline actions to address identified issues. Signup and view all the answers

Who is typically responsible for maintenance and application of policies within a firm?

The owner of the policy or a manager of a functional area Signup and view all the answers

What is the purpose of circulating draft policies to management teams?

To solicit feedback and ensure acceptance Signup and view all the answers

What potential issue can arise if employees create their own ad hoc policies?

It can result in non-compliance with established guidelines Signup and view all the answers

Which of the following roles do the CCO and compliance department primarily play during policy development?

They offer advice and guidance, not primary responsibility Signup and view all the answers

What should be done after implementing new procedures?

A post-implementation review with the user group should be conducted Signup and view all the answers

Why is it essential to identify areas of direct interest when drafting policies?

To ensure appropriate drafting and implementation of the policy Signup and view all the answers

What was Leon's recommendation to limit his workload at the securities firm?

He advised that documents received after 2:00 p.m. cannot be processed on that day Signup and view all the answers

What role does training play concerning established guidelines for policies and procedures?

Training prevents employees from creating informal practices Signup and view all the answers

What should managers and staff do before a policy is finalized?

Provide feedback on the draft and confirm acceptance Signup and view all the answers

How is the owner of a policy defined within a firm?

A manager of a specific department or business area Signup and view all the answers

What should corporate policies typically include?

Firm's mission statement and code of conduct Signup and view all the answers

Which of the following is not a typical topic covered by compliance policies for registrants?

Firm's promotional strategies and marketing Signup and view all the answers

Which policies might address the supervisory responsibilities for other business locations?

Compliance policies for supervisors Signup and view all the answers

What might client accounts policies include?

Policies regarding account opening and changes to information Signup and view all the answers

Which type of policy would likely include guidelines for credit and stock lending?

Operations policies Signup and view all the answers

Which area would not typically be addressed in human resources policies?

Investment banking and syndication guidelines Signup and view all the answers

What is the primary reason for spelling out abbreviations in policies directed at clerical staff?

To ensure comprehension by all employees. Signup and view all the answers

What do trading and order execution policies primarily cover?

Strategies for equity and debt market trading Signup and view all the answers

Why is it advised to use titles instead of named individuals in policy documents?

Named individuals can change frequently, rendering the document obsolete. Signup and view all the answers

What is the purpose of using a numbering system in policies and procedures?

To track historical changes and facilitate ease of reference. Signup and view all the answers

Which of the following is true regarding procedures that accompany policies?

They can be more specific and do not need to be broadly circulated. Signup and view all the answers

What is a key consideration when writing policies for a policy manual?

Consideration of specific readers while acknowledging broader access. Signup and view all the answers

What should not be done when a policy or procedure is eliminated?

Use the same reference number for a different policy. Signup and view all the answers

What is a key characteristic of a useful policy statement?

It should be both concise and precise, providing clear details. Signup and view all the answers

Policy manuals may include which of the following broader topics?

Corporate policies and human resources policies Signup and view all the answers

Why is it important to consider accessibility and utility when disseminating policies and procedures?

To ensure that all employees are aware and can easily understand the policies. Signup and view all the answers

Study Notes

CIRO Rules and Policies

CIRO requires that dealer members have policies and procedures governing specific processes like retail account supervision and trading.
Dealer members must have policies and procedures in place that address daily and monthly supervision of trading activity in retail client accounts, outlining actions to address problems or issues identified by the review.
CIRO does not dictate the specific content of policies and procedures, nor does it review or approve them prior to implementation.
CIRO may perform post-implementation reviews, focusing on policies rather than procedural details.
If serious gaps in a firm's policies and procedures are found during such reviews, CIRO can require that they be rectified.
CIRO provides guidance on what areas a dealer member's policies should cover and how they relate to regulatory requirements.
A policy generally describes a rule designed to address a particular risk and is likely based on a regulatory rule or pronouncement.
Procedures are designed to ensure specific requirements are met, such as ensuring each employee understands their responsibilities under the written policies and procedures and requiring written policies and procedures to be amended, as appropriate, within a reasonable time after changes in applicable laws, rules, regulations, or policies.

Developing and Amending Policies and Procedures

The process for developing, approving, implementing, amending, and updating policies and procedures is itself a matter of policy and procedure.
Factors considered when developing policies and procedures include the policy's necessity, who will be affected, staffing requirements for implementation, information technology requirements for implementation or monitoring performance, training needs, expense or revenue implications, risks of inaction, and if all alternatives have been considered.
The chief compliance officer (CCO) approves all policies that address securities regulatory requirements within the scope of compliance.
Policies and procedures can originate from any department and may have regulatory aspects that are not apparent to all.
The CCO should be familiar with developments in other departments.

Policy and Procedure Ownership and Creation

Policies and procedures should have an owner within the firm, usually the manager of the relevant business or functional area.
Policies and procedures are often prepared by the staff of the departments that are affected.
The CCO and the compliance department may provide advice and guidance during the development process.
It is important to identify other areas of the dealer member that have a direct interest in the application of policies to ensure the policy is drafted and implemented appropriately.
Draft policies should be circulated to the management teams that will be affected by them.
Procedures might be circulated to those who will primarily use them to solicit feedback and ensure acceptance.
Post-implementation reviews with the same group can identify areas for improvement.
Managers and staff must be trained and informed about established guidelines for policy and procedure development.

Examples of Policies and Procedures

Dealer members have a regulatory obligation regarding document retention, including electronic mail.
The CCO must ensure the head of information technology is familiar with these requirements to ensure proper email archiving and document retention.
If an employee tries to establish ad hoc policies to make their job easier, proper training can prevent such problems.

Major Considerations for Creating and Reviewing Policies and Procedures

Depending on the business, a dealer member's policy manual may include sections on various topics, such as:
- Corporate policies, including the firm's mission statement and code of conduct
- Compliance policies for registrants, including policies aimed specifically at certain categories of registrants and their respective obligations, as well as policies regarding anti-money laundering and other gatekeeper responsibilities
- Compliance policies for supervisors
- Credit and margin policies
- Client accounts policies
- Operations policies
- Sales policies
- Trading and order execution policies
- Investment banking and syndication policies
- Research policies
- Human resources policies
- Policies for other support services

Writing Guidelines for Policies and Procedures

Write policies for specific readers but acknowledge a wider audience may have access to the material.
Write in the present tense using plain language and active verbs.
Be concise and precise.
Avoid using information that can quickly become outdated, such as the names of persons in certain positions; use titles relating to positions instead.
Adopt a consistent format and consider obtaining outside expertise to ensure grammatical correctness and readability.
Use a numbering system for ease of reference and tracking historical changes.
When a policy or procedure is eliminated, do not reuse its reference number.

Disseminating Policies and Procedures

Accessibility and utility must be considered when policies and procedures are disseminated.
Policies and procedures that govern employee behavior should be kept up to date and made readily accessible.

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Description

This quiz covers the essential elements of CIRO rules and policies governing dealer members. It discusses the requirements for supervision of trading activities in retail accounts, along with the implications of policy implementation and review by CIRO. Understand the significance of policies in regulatory compliance and risk management.