Know-Your-Product (Firm Level)

Test yourself

Two real CIRE-bank questions on this exact outcome. Click to reveal the answer and the rule citation.

1. 1

   A client wants to open an account where they can make their own investment decisions without advice and without the dealer assessing suitability on each trade. Which account type best fits this description, and what must occur before it is opened?

   Outcome 3.5 · click for answer

   A.A managed account; the dealer must provide a written investment management agreement.

   B.A discretionary account; the client and portfolio manager sign a letter of direction.

   C.An advisory account with a suitability waiver; the client signs a one-time exemption form.

   D.An order execution only (OEO) account; the dealer must provide three pre-opening disclosures: that no advice will be given, that ongoing suitability assessments will not be conducted, and that the client is responsible for their own decisions.Correct

   An order execution only account is the account type where the dealer executes client-directed orders without providing advice or conducting ongoing per-trade suitability assessments. Before opening an OEO account, IDPC Rule 3219 requires three specific written disclosures: (1) no advice will be provided, (2) suitability will not be assessed on an ongoing basis, and (3) the client is responsible for their own investment decisions. These disclosures ensure the client understands the self-directed nature of the account before the first trade.

2. 2

   An elderly client with 'conservative' investment objectives and a two-year time horizon asks her registrant to purchase a speculative junior mining stock because 'my grandson says it will double.' The registrant believes the trade is unsuitable. Under IDPC Rules, what is the registrant's obligation?

   Outcome 3.5 · click for answer

   A.Advise the client of the suitability concern in writing, document the client-initiated order as such, and if the client insists, execute the order and document that the client was informed of the concern.Correct

   B.Execute the order without comment because the client has provided an explicit instruction and has the right to make her own decisions.

   C.Escalate immediately to the compliance department and await their approval before speaking to the client.

   D.Refuse the order outright because the account mandate is conservative and no unsolicited speculative trades are permitted.

   Under IDPC Rule 3402, the registrant must assess suitability and, where a trade is unsuitable, inform the client of that determination. For client-directed orders (where the client insists on proceeding despite the warning), the registrant must document the client's instruction, note the suitability concern in the file, and then execute the order. Simply refusing all unsolicited orders or bypassing the client to seek compliance approval are not the prescribed responses. Documenting the client-initiated nature of the order is essential to protect both the client and the registrant.

Related terms in KYC and Suitability

• Know Your Client (KYC)

  The mandatory client-information collection rule under CIRO IDPC Rule 3402.

• Know Your Product (KYP)

  The firm-and-individual obligation to understand every product the dealer offers.

• Suitability Determination

  The account-level obligation to recommend only suitable investment actions.

• Account Appropriateness

  The pre-suitability check on whether the client should open the account at all.

• Trusted Contact Person (TCP)

  A non-trading contact a client designates so the dealer can address concerns about exploitation or capacity.

• Know-Your-Product (Rep Level)

  The registrant's personal obligation to understand any product they recommend to a client.