A new client is opening a brokerage account and provides their driver's license, Social Security number, and current address. However, they refuse to disclose their occupation and employer. Under FINRA rules, what is the MOST appropriate action for the registered representative?
- AOpen the account, document the client's refusal, and proceed with due diligence to assess suitability based on available information.
- BDecline to open the account, as occupation and employer are mandatory for all new accounts.
- CReport the client's refusal to FINRA immediately as a suspicious activity.
- DOpen the account but restrict trading to unsolicited orders only, as suitability cannot be determined.
Show answer & explanationAnswer & explanation
Correct answer: A. Open the account, document the client's refusal, and proceed with due diligence to assess suitability based on available information.
While occupation and employer are critical for suitability determination and anti-money laundering (AML) efforts, FINRA rules do not strictly prohibit opening an account if a client refuses this specific information, as long as the firm can still meet its suitability obligations and document the refusal. The firm must then attempt to determine suitability based on the information provided and other available resources.
Why the other options are wrong
- B. While important, occupation and employer are not explicitly mandatory fields that would automatically prevent opening an account if other CIP requirements are met and suitability can still be assessed.
- C. Refusal to provide occupation/employer, while a red flag, does not automatically constitute suspicious activity requiring immediate FINRA reporting without other indicators of illicit activity.
- D. Restricting to unsolicited orders is a measure for unsuitable recommendations, but the issue here is initial suitability assessment and account opening with incomplete data, not necessarily preventing all forms of trading.
Essential Customer Information (New Accounts)
Information required for opening a new customer account, including Customer Identification Program (CIP) requirements and suitability information.
- CIP requires name, DOB, address, taxpayer ID (SSN).
- Suitability requires investment objectives, risk tolerance, financial situation, occupation, employer.
- Firms must make a reasonable effort to obtain all information.
- Refusal of some suitability info may not prevent account opening if suitability can still be determined and documented.
Memory trick: New accounts: 'K'now 'Y'our 'C'lient, 'S'uitability 'D'iligence.