10.1 Customer Accounts for Individuals

new account form

must be completed by rep and kept at brokerage firm. info that is required by FINRA:

• customer name and address

• if customer is of legal age (date of birth not initially required)

• name of registered reps who will handle account (not needed for institutional accounts)

• principals signiture (customers is not required)

• if customer is a corporation then the name of the person who will transact busines in the account

broker should make reasonable efforts to obtain the following before the settlement of the first transaction

• SSN or tax ID number - must be provided to verifty identity

• occupation of customer and address of employer

• if customer is employed by broker-dealer

• if customer is an officer or director at a publicly held company

• citizenship

• cash or margin account

• third party authorization if any

resonable effort must be made for suitability purposes for

• customers age (date of birth required to verifty identity)

• investment experience

• time horizon and liquidity needs

• risk tolerance

• financial situation and needs

• objectives and other holdings

• estimated annual income

• tax status

copy of new account form must be sent to the customer

• within 30 days of opening the account

• at least every 3 years after to verify and update

• within 30 days of any updates

CIP

customer identification program. firms are required to check if the person is on a known os suspected terrorist list called the SDN list provided by the OFAC

SDN

specially designated nationals and blocked persons

OFAC

office of foreign assets control

KYC

know your customer. requires broker dealers to use resonable diligence to collect and maintain essential info on their customers. requires firm to check

• customers identities

• investment histories

• investmnet objectives

• sources of funds

info is used to ensure customers are not laundering money and making suitable recommendations

if customer does not provide all info required

account may still be opened if following facts are collected that are necessary to

• effectively service a customers account

• carry out special handling instructions for the account

• understand who has trading authority

  • comply with securities laws, regulations, and rules

AML requirements

three phases

1. placement: inital entry of cash into financial system

2. layering: funds are wired to a series of other financial institutions that make it hard to trace the original source

3. integration: funds are returned to criminal from what seems to be legit sources

SAR

suspicious activity report. Bank Secrecy Act requires broker dealers to file these with FinCEN if potential money laundering of violations of BSA are detected or suspected. required to be filled within 30 days

FinCEN

financial crimes enforcement network, part of departmant of treasury. acts as central collection point for AML reports

CTR

currency transaction reports. BSA requires financial institutions to report currency transactions in amounts that exceed $10K. must be filled within 15 days of crossing $10K threshhold. structing is included (series of smaller deposits)

MIL

monetary instrument log. broker dealers must make a record of cash purchases of negotiable instruments between $3K and $10K in an internal log called a monetary instrument log

firm AML program

each firm must establish one. must appoint designated AML compliance officer responsible for creating written supervisory procedures. program must

• include procedures reasonably designed to detect and report suspicious activity

• have risk based customer identification program

  • provide ongoing training to appropriate personnel

numbered accounts

customers can open numbered account by using a number or symbol instead of a name. customer can remain annonymous when placing trads. firm still required to include customers identity on new account form and the owner must sign the form and this document must be kept on file at the broker dealer

reg s-p notice

firms must provide customers with a notice describing their privacy policies and procedures when an ccount is opened and then annually. this notice must

• desribe type of info that will be collected

• how this info will be used

• whom the info will be shared with (not names, only categories)

• adequate notice to opt out and how to opt out

reg s-p written plan

covers safeguarding of customer info. plan must be designed to

• ensure security and confidentiality of customer records and info

• protect against any anticipated threads or hazards to customer records and info

• protect against unauthorized access to or use of customer records or info

limited trading authority

allows third party to trade in account but not to make withdrawls

full trading authority

gives authority to trade and make withdrawls

discretionary authority

gives rep authority to trade in account

representative needs to make a trade without discretionary authority

• asset - name of security

• action - buy or sell

• amount - amount to be traded

discretionary authority is usually not needed to choose the time or price

discretionary accounts

discretionary authority must be given in writing before the account can be opened. typically requires customer to grant rep a power of attorney which usually gives limited trading authorization (not full)

churning

entering of excessive often unsuitable transactions with the purpose of generating commissions for teh rep. prohibited. to prevent principal of firm must approve all descretionary accounts prior to opening and must also promptly approve all discretionary orders in writing and review all accounts at frequent intervals

account for employee of antoher member

• associated person must notify firm in writing they are an associated person of another firm (immediate family too)

• written consent of employer

• duplicate confirmations and statements sent on request