Screening for Special Categories of Customers
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.
Domestic vs. Foreign Residency and Citizenship
- 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) |
Corporate Insiders
- Corporate insiders include officers, directors, and principal shareholders (10%+ ownership) of publicly traded companies
- Insider accounts may be subject to Section 16 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 Section 16 means 10% or more of a class of equity securities (not 5%). This threshold triggers both reporting obligations and the short-swing profit rule.
Employees of Broker-Dealers and Self-Regulatory Organizations (FINRA Rule 3210)
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 obtain prior written consent from the employing member before opening the account
- The employing member must consider whether it can obtain duplicate copies of confirmations and statements from the other firm
- Accounts opened before association require written consent within 30 calendar days of becoming associated
Beneficial Interest Presumptions
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
Exam Tip: Gotchas
- Rule 3210 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 to anyone the associated person controls the account of and materially contributes to financially.