Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkHard
A broker-dealer firm's compliance team is reviewing the firm's supervisory procedures. According to FINRA rules, a registered principal must review and approve all new accounts. Which of the following is NOT required to be performed by the principal before approving a new account?
- AEnsuring that all required disclosures have been provided to the client.
- BReviewing the new account form for accuracy and completeness.
- CObtaining a signed copy of the customer's most recent tax return.
- DDetermining if the account is suitable for the client's investment objectives.
Show answer & explanationAnswer & explanation
Correct answer: C. Obtaining a signed copy of the customer's most recent tax return.
While a principal must review new account forms for accuracy, suitability, and proper disclosures, obtaining a signed copy of the client's tax return is not a regulatory requirement for opening a standard brokerage account. Tax returns may be requested for specific tax-advantaged accounts or complex planning, but not as a universal prerequisite for account approval.
Why the other options are wrong
- A. Ensuring disclosures are provided is a standard regulatory requirement.
- B. A principal must verify accuracy and completeness of account information.
- D. Suitability determination is a critical part of new account approval.
New Account Approval Requirements (FINRA)
Before a new account can be opened and trades executed, a registered principal must review and approve the account, ensuring completeness, accuracy, and suitability, and that all necessary disclosures have been provided.
- Principal must sign the new account form.
- Suitability is paramount.
- Specific documents (e.g., tax returns) are not universally required.
Memory trick: Principal checks all, but tax returns not always call.