3.g Flashcards
(6 cards)
What is the primary purpose of a firm’s Customer Identification Program (CIP)?
The CIP is a requirement under the USA PATRIOT Act to verify the identity of any new customer.
Its goal is to help the government fight terrorism and money laundering.
What are the four minimum pieces of information a firm must obtain to identify a new customer?
- Name
- Date of Birth
- Address (a physical street address, not a P.O. Box)
- Identification Number:
- For a U.S. person: Social Security Number (or Tax ID for a business).
- For a non-U.S. person: Taxpayer ID, passport number, or alien ID card number.
What must the firm do to verify a customer’s identity after collecting their information?
The firm must check the information against a valid, unexpired, government-issued ID (like a driver’s license or passport).
It must also check to see if the customer appears on any list of known or suspected terrorists.
What should a firm’s procedures describe if it cannot verify a customer’s identity?
The procedures should outline:
* When to refuse to open an account.
* When to close an account that was already opened.
* When to file a Suspicious Activity Report (SAR).
What is the main point of the Know Your Customer (KYC) rule?
The KYC rule (FINRA Rule 2090) requires firms and their reps to use reasonable effort to know the essential facts about a customer.
This goes beyond just identity and includes their financial situation, investment objectives, and needs to ensure that any recommendations are suitable.
What happens under the KYC rule if a customer refuses to provide information needed for a suitability determination?
The firm or representative should narrow the range of recommendations they make.
If not enough information is gathered to have a ‘reasonable basis’ for a recommendation, then no recommendations should be made. The account would likely be limited to unsolicited (customer-initiated) trades.
