Canadian Securities Course (CSC) Level 1 Practice Exam

Describe the principal-based regulatory model.

1. Regulators set detailed rules for securities dealers

2. Firms themselves set regulatory objectives

3. Regulators set objectives for securities dealers

4. Regulatory compliance is optional

The correct answer is: Regulators set objectives for securities dealers

The principal-based regulatory model is characterized by regulators setting objectives for securities dealers. This means that regulators establish high-level principles and standards that firms must adhere to, rather than providing detailed rules for every specific situation. By setting objectives, regulators allow firms the flexibility to determine how best to achieve compliance while still fulfilling the overarching regulatory requirements. This approach aims to promote ethical behavior, integrity, and professionalism within the securities industry, providing a more principles-based framework for regulation. Option A is incorrect as the principal-based regulatory model does not involve regulators setting detailed rules for securities dealers. Option B is incorrect because firms do not set regulatory objectives under this model. Option D is incorrect as regulatory compliance is not optional in a principle-based regulatory framework.