Quick Answer
Beyond standard CIP and KYC, certain customers trigger extra rules: non-U.S. persons need different identification documents, corporate insiders face short-swing profit restrictions, and associated persons of other broker-dealers need employer consent before opening outside accounts. Each category adds a specific documentation or reporting duty on top of the baseline screening.
With Customer Identification Program (CIP) and Know Your Customer (KYC) requirements in place, certain customers still require additional screening. The firm must identify these categories because they trigger extra documentation, reporting, or monitoring requirements.
How Does Residency or Citizenship Change CIP?
- CIP procedures must distinguish between U.S. persons and non-U.S. persons
- Non-U.S. persons may provide a passport number and country of issuance or an alien identification card number instead of a Social Security number (SSN)
- Additional documentation may be required depending on the customer's residency status:
| Status | ID Requirement | Additional Considerations |
|---|---|---|
| U.S. citizen | SSN or taxpayer ID | Standard CIP |
| Resident alien | SSN or taxpayer ID | May need additional documentation |
| Non-resident alien | Passport number or alien ID | Different tax withholding rules (e.g., 30% on dividends under non-resident alien (NRA) rules) |
Who Counts as a Corporate Insider?
- Corporate insiders include officers, directors, and principal shareholders (10%+ ownership) of publicly traded companies
- Insider accounts may be subject to insider reporting requirements (the short-swing profit rule: profits from buy/sell within 6 months must be disgorged)
- Firms must identify insider status to monitor for potential insider trading violations
- Insiders are restricted from trading on material nonpublic information (MNPI)
Exam Tip: Gotchas
- A "principal shareholder" under the insider-reporting framework means 10% or more of a class of equity securities (not 5%). This threshold triggers both reporting obligations and the short-swing profit rule.
What Rules Apply to Broker-Dealer and SRO Employees?
When an associated person of one firm wants to open an account at another broker-dealer or financial institution, special rules apply:
- The associated person must notify the executing member or other institution in writing of the association with the employing firm before opening the account, and obtain prior written consent from the employing member
- If the account is held at another member firm, that executing member must transmit duplicate copies of confirmations and statements to the employing member on written request. If the account is held at a non-member financial institution, the employing member instead weighs, before consenting, how likely it is to obtain those duplicates
- Accounts opened before association require written consent within 30 calendar days of becoming associated
- The rule does not apply to accounts limited to unit investment trusts, municipal fund securities, qualified tuition programs, variable contracts, or registered investment company redeemable securities, nor to Monthly Investment Plan-type accounts or certain other tax-advantaged accounts named in the rule
Who Is Presumed to Have a Beneficial Interest?
An associated person is presumed to have a beneficial interest in accounts held by:
- Spouse
- Child residing in the same household or financially dependent on the associated person
- Any related individual over whose account the associated person has control
- Any other individual over whose account the person has control and to whose financial support the person materially contributes
The presumption is rebuttable only for a spouse or qualifying child: if the associated person demonstrates, to the employing member's reasonable satisfaction, that they get no economic benefit from and exercise no control over that specific account, it is not presumed covered. No such rebuttal exists for the "related individual" or "other individual" categories.
Exam Tip: Gotchas
- The outside-account-disclosure rule applies to accounts at other broker-dealers and financial institutions, not accounts at the associated person's own firm.
- Consent comes from the employing member, not the executing member.
- The 30-day deadline applies only to pre-existing accounts. New accounts need prior consent (before opening).
- "Beneficial interest" extends beyond spouse and children: a related individual's account is presumed covered on control alone, while any other individual's account requires both control and material financial contribution.
What Should You Check on Exam Day?
- Remember the 10% threshold defines a principal shareholder, not 5%, and it triggers both insider reporting and the short-swing profit rule
- Outside-account consent runs through the employing member, and a pre-existing account gets a 30-calendar-day grace period; a new account needs consent before opening
- Watch for the broad definition of beneficial interest: it reaches related individuals on control alone, and other individuals on control plus material financial support