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Know Your Client (KYC)

Know Your Client (KYC)

What is 'Know Your Client - KYC'

The Know Your Client form is a standard form in the investment industry that ensures investment advisors know detailed information about their clients' risk tolerance, investment knowledge and financial position.

Explaining 'Know Your Client - KYC'

The Know Your Client (KYC) rule is an ethical requirement for those in the securities industry who are dealing with customers during the opening and maintaining of accounts. There are two rules which were implemented in July 2012 that cover this topic together: Financial Industry Regulatory Authority (FINRA) Rule 2090 (Know Your Customer) and FINRA Rule 2111 (Suitability). These rules are in place to protect both the broker-dealer and the customer and so that brokers and firms deal fairly with clients.

Suitability Rule

As found in the FINRA Rules of Fair Practices, Rule 2111 goes in tandem with the KYC rule and covers the topic of making recommendations. The suitability Rule 2111 notes that a broker-dealer must have reasonable grounds when making a recommendation that it is suitable for a customer based on the client’s financial situation and needs. This responsibility means that the broker-dealer has done a complete review of the current facts and profile of the customer including the customer’s other securities before making any purchase, sale or exchange of a security.

Establishing a Customer Profile

Investment advisors and firms are responsible for knowing each customer's financial situation by exploring and gathering the client's age, other investments, tax status, financial needs, investment experience, investment time horizon, liquidity needs and risk tolerance. The SEC requires that a new customer provide detailed financial information that includes name, date of birth, address, employment status, annual income, net worth, investment objectives and identification numbers before opening an account.


Further Reading

Know your customer-or notKnow your customer-or not
heinonline.org [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …

What do your customers really know? Bank managers and compliance cost perceptionsWhat do your customers really know? Bank managers and compliance cost perceptions
ideas.repec.org [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …

Preventing Money Laundering or Obstructing Business? Preventing Money Laundering or Obstructing Business?
academic.oup.com [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …

The identity challenge in finance: from analogue identity to digitized identification to digital KYC utilitiesThe identity challenge in finance: from analogue identity to digitized identification to digital KYC utilities
link.springer.com [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …

Financial regulations and price inconsistencies across Bitcoin marketsFinancial regulations and price inconsistencies across Bitcoin markets
www.sciencedirect.com [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …

Strengthening the role of lawyers and other professional advisers in addressing economic and financial crimes in IndonesiaStrengthening the role of lawyers and other professional advisers in addressing economic and financial crimes in Indonesia
www.emerald.com [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …

Promoting financial inclusion for inclusive growth in AfricaPromoting financial inclusion for inclusive growth in Africa
www.africaportal.org [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …

The emergence of RegTech 2.0: From know your customer to know your dataThe emergence of RegTech 2.0: From know your customer to know your data
papers.ssrn.com [PDF]
… deposit accounts, entering into loan agreements, or forming a client relationship … to approving a loan application, a bank should verify the customer/borrower's ability … Know Your Customers Soon-Somehow, BANKERS ONLINE, http://www.bankersonline.com /articles/v02n1213 …


Tags

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Section 508

WCAG 2.0

Section 508