Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesHard
A firm receives a check from a new customer to open a cash account. The check is for $500, but the customer's new account form has not yet been approved by a principal. According to FINRA rules, what action should the firm take with the check?
- ADeposit the check into a segregated escrow account until approval.
- BHold the check in the branch office's safe until approval.
- CDeposit the check immediately into the firm's operating account.
- DReturn the check to the customer until the account is approved.
Show answer & explanationAnswer & explanation
Correct answer: A. Deposit the check into a segregated escrow account until approval.
FINRA rules require that any funds received from a customer before an account is approved by a principal must be placed into a segregated escrow account. This ensures the funds are protected and not commingled with firm assets or used for trading until the account relationship is formally established.
Why the other options are wrong
- B. Holding the check in a safe is insufficient; the funds need to be formally segregated and protected in a bank account.
- C. Depositing into the firm's operating account would be commingling and a violation.
- D. Returning the check is not always practical or necessary; segregation is the proper procedure.
New Account Funds Handling
When a firm receives funds from a new customer before the account has been formally approved by a principal, those funds must be placed into a segregated escrow account to protect the customer and prevent commingling.
- Applies to funds received prior to principal approval.
- Funds must be segregated.
- Escrow account is required.
- Protects customer funds and prevents commingling.
Memory trick: New Account: Form, approve, then fund, or escrow if funds come early.