A client opens a new brokerage account with a registered representative. During the account opening process, the client refuses to provide their occupation, stating it is irrelevant to their investment objectives. Under FINRA rules, what is the MOST appropriate action for the registered representative?
- AOpen the account but note the client's refusal to provide occupation.
- BInform the client that occupation is only required for margin accounts, not cash accounts.
- COpen the account and use a generic description like 'self-employed' for the occupation.
- DDecline to open the account until the occupation information is provided.
Show answer & explanationAnswer & explanation
Correct answer: D. Decline to open the account until the occupation information is provided.
FINRA Rule 2090 (Know Your Customer) and other anti-money laundering (AML) regulations require firms to obtain essential information about a customer, including their occupation and employer, to determine suitability and detect suspicious activity. If a client refuses to provide this mandatory information, the firm cannot complete the customer identification process and therefore cannot open the account.
Why the other options are wrong
- A. Refusing to provide mandatory information prevents proper suitability assessment and AML compliance, making simply noting the refusal insufficient.
- B. Occupation is required for all accounts (cash and margin) as part of the Know Your Customer (KYC) obligations.
- C. Using a generic or false description is a violation of FINRA rules and AML regulations.
Essential Customer Information (KYC)
FINRA Rule 2090 (Know Your Customer) mandates that firms obtain essential information about customers, including their occupation, to understand their financial situation and investment objectives, and to comply with AML regulations.
- Required for all account types (cash, margin, etc.).
- Includes name, address, date of birth, SSN/TIN, and occupation/employer.
- Crucial for determining suitability of recommendations.
- Aids in detecting and reporting suspicious activity (AML).
Memory trick: Know Your Customer, complete the form, or the account won't weather the storm.