Canadian Securities Course (CSC) Level 1 Practice Exam

What are the differences between a principal-based and a rules-based system?

1. A principal-based system imposes detailed rules

2. A rules-based system sets objectives

3. A principal-based system is clearer, simpler, and less costly

4. A rules-based system is more flexible and adaptable

The correct answer is: A principal-based system is clearer, simpler, and less costly

In this case, the correct answer is C because a principal-based system relies on fundamental principles and guidelines rather than detailed rules, making it clearer and simpler. It also tends to be less costly as it focuses on overarching principles that allow for more judgment and discretion in decision-making. On the other hand, a rules-based system, like option D, is typically more rigid and prescriptive, providing specific rules and criteria to follow, which may limit flexibility and adaptability.