Principal Approval of New Accounts

The account cannot open on a representative's say-so. A principal has to review it and put that review in writing first.

What Must a Principal Review Before an Account Opens?

• A registered principal must review, evidenced in writing, all transactions relating to the firm's investment banking or securities business. That duty reaches the securities activity in an account.
• The approval that governs opening the account itself is a separate duty. It runs through the acceptance signature on the account record, covered in the next section. The supervision rule that requires the written transaction review names final acceptance of a new account and review of customer orders as two different functions, and only the order function runs through the transaction-review requirement.
• The review and its outcome must be documented. An undocumented verbal sign-off does not satisfy either requirement, even if the principal did, in fact, review the account.

Exam Tip: Gotchas

• Principal review must be evidenced in writing. A principal who reviews and approves an account only verbally has not satisfied this duty, even if the account itself turns out to be entirely suitable.

How Does the Account Record Show That Approval?

• The account record must carry the signature of a partner, officer, or manager, that is, a registered principal, denoting that the account has been accepted in accordance with the firm's policies and procedures for accepting accounts.
• That signature is the documented approval that lets the account open. It shows a principal reviewed and accepted the account under the firm's written supervisory procedures.
• A different unit in this course teaches that signature as a recordkeeping item on the account record itself. This topic teaches the review process that produces it, which is a separate concept from the record the review leaves behind.

Exam Tip: Gotchas

• The account-acceptance signature belongs to a partner, officer, or manager, never to the representative who solicited the account. A representative cannot approve the account they opened.
• Do not treat opening an account as one of the "transactions" the written principal-review requirement names. The rules keep account acceptance and order review apart. Both still need a registered principal.

What Should You Check on Exam Day?

• Confirm the reviewer is a registered principal, never the representative who opened or solicited the account.
• Confirm the review is documented in writing; a verbal approval fails the requirement regardless of the account's suitability.
• Treat the account-acceptance signature as the approval that opens the account, and the written transaction review as the separate, ongoing duty.