Chapter 3: Customer-Related Activities
This chapter covers 21% of the Series 24 exam (approximately 32 questions) and focuses on the supervisor's obligations once an actual customer is involved: opening accounts, monitoring for money-laundering and identity theft, controlling communications, and reviewing recommendations against suitability and Reg BI.
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 1 | Account Opening and AML | Customer Identification Program, beneficial ownership, account types (cash, margin, retirement, trust, corporate, fiduciary), AML compliance, Bank Secrecy Act, SAR filings, Reg S-P privacy, Reg S-ID identity theft |
| 2 | Communications with the Public | Communication categories (retail, institutional, correspondence), principal pre-approval, filing requirements, social media, investment company communications, telemarketing, tape-recording (the Taping Rule), payments influencing market price |
| 3 | Recommendations and Disclosures | Know Your Customer, Suitability, Regulation Best Interest, Form CRS, markups/markdowns, discretionary accounts, day-trading rules, breakpoint sales, customer disclosures, red-flag recognition |
Why This Chapter Matters
Once a customer walks through the door (figuratively), the firm takes on a long list of disclosure, suitability, and monitoring obligations. The supervisor's job is to ensure those obligations are met systematically:
- Account opening must satisfy CIP, beneficial ownership, and Reg BI suitability gates before any transaction occurs
- AML monitoring must flag and report suspicious activity (currency transaction reports above $10,000, suspicious activity reports for unusual patterns)
- Communications must be pre-approved or reviewed depending on category, with principal sign-off documented
- Recommendations must satisfy Reg BI's care, conflict, disclosure, and compliance obligations
- Red flags must be detected, escalated, and resolved with audit-trail documentation
Exam Strategy
This chapter is moderately rule-dense. Focus on:
- Reg BI: the four obligations (Care, Conflict of Interest, Disclosure, Compliance) and how they apply to recommendations
- Form CRS: who delivers it, when, and what it must contain
- Communication categories: retail (filed with FINRA in many cases), institutional ($50M+ entities), correspondence (under 25 retail recipients in 30 days)
- CTR threshold: $10,000 in cash; SAR filing for suspicious activity over $5,000
- Day-trading rules: pattern day trader designation requires 4+ day trades within 5 business days and $25,000 minimum equity in a margin account
- Discretion: prior written authorization and principal acceptance under the discretion rule; the churning prohibition under the manipulative-practices rule