Every account opening answers two questions before the first trade: who is this customer, and who else may give orders or move money? Most exam items here test which document answers which question.
Money launderers need accounts opened in false or borrowed names. The USA PATRIOT Act answered by requiring every broker-dealer to run a customer identification program (CIP), written procedures for collecting and verifying each customer's identity. The rule sits in the Code of Federal Regulations (CFR) at 31 CFR 1023.220.
Before opening an account, you must get, at a minimum, four items:
- Name: The customer's name.
- Date of birth: Required for an individual.
- Address: For an individual, a residential or business street address. A customer without one may give an Army Post Office or Fleet Post Office box number, or a next of...
- ID number: For a U.S. person, a taxpayer identification number (TIN). A customer who has applied for a TIN but not received it may still open an account under the...
Common mistakes
- Requiring same-day order approval. Rule 3260 requires prompt written approval of each discretionary order. Same-day approval and initials come from Cboe Rule 9.4, and only at firms without computerized surveillance.
- Letting a durable power survive death. Durable means it survives incapacity; at death every power ends and the executor takes over.
- Expecting automatic duplicate statements. Under Rule 3210, the executing firm sends duplicates only on the employer's written request, and you still owe it written notice of your association.
Bottom line
- CIP needs name, date of birth, a residential or business street address and an ID number before opening, and the firm's procedures say when not to open, when to close and when to file a SAR if identity can't be...
- Rule 2090 KYC means reasonable diligence at opening and throughout the relationship to know the essential facts and who may act for the customer.
- A non-U.S. customer may give a passport, alien identification card or other government photo ID number; U.S. persons, including resident aliens, sign Form W-9, and foreign individuals sign Form W-8BEN.
- Flag officers, directors and more-than-10% holders as Section 16 insiders, and remember that Rule 144 defines an affiliate by control, not by a percentage.
Exam shortcut
Sort each stem by its question. "Who is this person?" points to CIP; "who may act, and how far?" points to KYC and the authority document. For a power of attorney, ask two things: may the agent withdraw, and is the customer incapacitated or dead?
The full lesson (about 3,302 words, 22 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- B8
Browse all free Series 7 lessons or jump into free Series 7 practice questions.