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.
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.
Know Your Client (kyc) FAQ
What are the three 3 components of KYC?
What are the KYC requirements?
What are the key client attributes in KYC process?
What is KYC check?
How does KYC process work?
What are the pillars of KYC policy?
Is KYC mandatory for banks?
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- The identity challenge in finance: from analogue identity to digitized identification to digital KYC utilities – link.springer.com [PDF]
- Financial regulations and price inconsistencies across Bitcoin markets – www.sciencedirect.com [PDF]
- Strengthening the role of lawyers and other professional advisers in addressing economic and financial crimes in Indonesia – www.emerald.com [PDF]
- Promoting financial inclusion for inclusive growth in Africa – www.africaportal.org [PDF]
- The emergence of RegTech 2.0: From know your customer to know your data – papers.ssrn.com [PDF]