Refusing, Restricting, and Closing Accounts

Not every account gets opened, and not every open account keeps running normally. This section covers the three supervisory actions that close doors: refusing to open, restricting activity in an existing account, and closing the account. The governing rule and the firm's written supervisory procedures determine the authorized decision maker and required records; a servicing representative does not gain authority merely by handling the account.

On what grounds may a firm refuse to open an account?

The firm's written supervisory procedures (WSPs) must describe circumstances in which the firm will refuse to open an account. Typical grounds include:

• CIP failure: the firm cannot form a reasonable belief as to the customer's true identity
• OFAC SDN list match: customer appears on the Office of Foreign Assets Control Specially Designated Nationals list or other government terrorist/sanctioned-persons list
• FinCEN 311 order or special measure: customer is subject to a Financial Crimes Enforcement Network action
• Information refusal: customer refuses to provide information required by the firm's WSPs or by law
• Product mismatch: the customer's stated objectives and requested account type indicate the firm cannot offer suitable service (for example, retail customer requesting products outside the firm's selling agreement)

Refusal decisions are documented and retained per firm policies and applicable recordkeeping rules.

When may a firm restrict activity in an existing account?

A restriction limits the type or scale of activity without closing the account. Common grounds include:

• Unsettled trades / Reg T or good-faith violations: account may be restricted to cash-up-front trading
• Suspicious activity under AML review: the firm may restrict activity while an anti-money-laundering (AML) investigation or Suspicious Activity Report (SAR) review is pending
• Law enforcement freeze letter or subpoena: activity may be restricted pending court order or regulatory guidance
• Senior-investor protection temporary hold: see below
• Trusted contact outreach: in connection with senior-investor concerns
• Customer complaint under internal review: activity may be limited pending resolution
• Rep suspension or termination: accounts assigned to a departed rep may be reassigned or temporarily restricted pending reassignment

What Are Temporary Holds for Specified Adults?

The senior-investor protection rule provides a safe harbor for firms that place a temporary hold on a disbursement or transaction from the account of a specified adult when the firm reasonably believes financial exploitation has occurred, is occurring, has been attempted, or will be attempted.

A specified adult is:

• A natural person age 65 and older
• A natural person age 18 and older whom the firm reasonably believes, based on the facts and circumstances observed in the business relationship, has a mental or physical impairment that renders the individual unable to protect their own interests

Key safeguards:

• Notification of the hold and the reason for the hold must be provided to all parties authorized to transact business on the account and, if available, the trusted contact person, no later than two business days after the date the hold was placed
• The initial disbursement hold runs up to 15 business days. It may be extended by 10 business days if the firm's internal review supports a reasonable belief of exploitation, and by a further 30 business days if the firm has reported the matter to a state regulator, agency, or court of competent jurisdiction (total up to 55 business days)
• The firm must conduct an internal review of the facts and circumstances
• The firm's written supervisory procedures must identify the title of each person authorized to place, terminate, or extend a hold. That person must be an associated person serving in a supervisory, compliance, or legal capacity, and need not be a registered principal

Exam Tip: Gotchas

• Senior-investor protection holds are firm-initiated restrictions authorized by rule, not unilateral refusals. The hold is temporary, subject to specific notice requirements, time limits, and internal-review obligations. A rep who tells a senior customer "the firm is freezing your account" without following the rule's procedures has botched the safe harbor.

What Is SAR Confidentiality?

If the firm restricts activity because of an AML investigation, the firm generally cannot tell the customer a SAR has been filed or is being considered. Disclosing the existence of a SAR is itself a violation ("tipping off").

Exam Tip: Gotchas

• SAR confidentiality means the reason for the restriction cannot be disclosed to the customer in a way that would compromise the SAR. A rep who explains "we restricted your account because of a SAR filing" has violated the tipping-off prohibition. The restriction is visible; the reason is not.

On what grounds may a firm close a customer account?

Grounds for closing an account fall into four buckets:

• Customer request: the firm processes the closure per WSPs (transfer or distribute assets, confirm no open orders, document the closure)
• Death of the customer: the account is restricted pending legitimate instructions from the estate representative
• Firm-initiated closure: the firm may close an account when:
  • Continued maintenance would violate applicable law or rule (for example, a sanctions list match discovered after opening)
  • The customer has engaged in conduct that violates the customer agreement (fraud, market manipulation, abuse of firm staff)
  • The business relationship is no longer commercially viable
• Regulatory or law enforcement direction: the firm may close an account in response to regulatory action

What documentation and authorization does account refusal, restriction, or closure require?

For each refusal, restriction, or closure, the firm must follow the actor named by the governing rule and its written supervisory procedures, document the decision as required, and retain the applicable records. Principal approval is required where the relevant rule or procedure calls for it; it is not a universal requirement for every restriction.

A senior-investor temporary hold is a specific example: the firm designates an associated person serving in a supervisory, compliance, or legal capacity, who need not be a registered principal.

Restrictions imposed under AML / SAR procedures are subject to SAR confidentiality: the restriction itself and its rationale are handled in ways that do not compromise the SAR.

Exam Tip: Gotchas

• The authorized actor depends on the action and the firm's procedures. A servicing representative cannot impose a restriction solely by virtue of servicing the account. A qualified person designated for a senior-investor hold need not be a registered principal.

What are the most tested rules on refusing, restricting, and closing accounts?

Exam Tip: Gotchas

• Refusal, restriction, and closure require rule-specific authority, not an automatic principal signature or unilateral representative decision.
• Senior-investor protection temporary holds are a safe harbor with specific mechanics: two-business-day notice, a 15-business-day initial hold, a 10-business-day extension once internal review supports the belief, and a further 30-business-day extension with regulator notification (up to 55 business days total). Memorize the notice-first requirement.
• A "specified adult" is age 65+, OR age 18+ with a mental or physical impairment that renders them unable to protect their own interests. Both categories qualify.
• SAR confidentiality prohibits "tipping off." The restriction can be disclosed; the SAR filing cannot.
• Every closure still requires documentation. Even a customer-requested closure generates a paper trail: transfer instructions, open-order confirmation, and the written basis retained per the broker-dealer recordkeeping rule.

What Should You Check on Exam Day?

• Can you list at least three grounds for refusing to open an account, such as CIP failure, an OFAC SDN list match, or a customer's refusal to provide required information?
• Do you know the two categories that make a customer a specified adult under the senior-investor protection rule: age 65 and older, or age 18 and older with a qualifying impairment?
• Can you state the temporary-hold timeline: notice within two business days, an initial 15-business-day hold, a 10-day extension, and a further 30-day extension after regulator notification?
• Do you know that SAR confidentiality forbids telling a customer the real reason for a restriction, even though the restriction itself can be disclosed?
• Can you identify the authorized actor under the governing rule and the firm's procedures, including the special rule for senior-investor temporary holds?