Quick Answer
Account opening turns on authority and records. Confirm who may open and transact in the account, record the approvals, and keep standing settlement instructions separate. Collect each customer's name, address, identification number, and an individual's birth date. A firm may open an account for a customer who has applied for a taxpayer number.
What Identifying Information Comes Before Account Opening?
A customer identification program must use risk-based procedures that let the firm form a reasonable belief that it knows each customer’s true identity.
The firm generally collects these items before opening the account:
| Required item | What must the record show? |
|---|---|
| Name | The customer’s name. |
| Date of birth | The date of birth for an individual. |
| Address | An individual’s residential or business street address. A person other than an individual provides a principal business location, local office, or other physical location. |
| Identification number or foreign-business alternative | A U.S. person provides a taxpayer identification number. A non-U.S. person may provide specified government-issued identification, such as a passport number and country of issuance. |
Exam Tip: Gotchas
- The taxpayer-number application procedure is a limited exception. A firm may open an account without the number if it confirms that the customer applied before opening.
When Does the Firm Verify Identity?
The firm verifies identity within a reasonable time before or after account opening. Collection and verification therefore have different timing.
| Method | What can the firm use? |
|---|---|
| Documentary | An individual’s unexpired government-issued identification with a photograph or similar safeguard. An entity can provide documents showing its existence, such as formation documents, a business license, a partnership agreement, or a trust instrument. |
| Non-documentary | Customer contact, comparison with an independent source, reference checks with other financial institutions, or a financial statement. |
For a customer that is not an individual, the firm may need information about people with authority or control. This additional step depends on the new account’s risk and applies only when the firm cannot verify the customer’s identity through its documentary and non-documentary methods.
If the firm cannot form a reasonable belief that it knows a customer’s true identity, the customer identification program must include response procedures.
When Does the Firm Check Government Lists?
The firm checks whether the customer appears on a federal government list of known or suspected terrorists or terrorist organizations designated by Treasury.
Who Can Transact for an Entity?
Entity documents can establish that the entity exists. The firm must also use reasonable diligence to know each acting person’s authority. For a legal entity, the account record names every person authorized to transact for it.
The authorized-person record is separate from the firm’s internal account acceptance. Neither one replaces the other.
What Paperwork and Approval Must the Account Record Show?
The required account record connects the customer, the people handling the account, and the people authorized to act.
| Account record item | Scope or exception |
|---|---|
| Customer identity | Record the customer’s name, residence, and whether the customer is of legal age. |
| Responsible associated persons | Record each responsible associated person, if any. If multiple people share responsibility, record each person’s scope of responsibility. |
| Account acceptance | Keep the signature of the partner, officer, or manager showing that the firm accepted the account under its policies and procedures. |
| Authorized persons for an entity | For a corporation, partnership, or other legal entity, record each person authorized to transact for it. |
The account acceptance signature is the required approval record. A customer’s authority to transact does not replace that internal acceptance.
- the customer’s taxpayer identification or Social Security number;
- the customer’s occupation and the employer’s name and address; and
- whether the customer is associated with another member firm.
Exam Tip: Gotchas
- Account acceptance and transaction authority are different records. A partner, officer, or manager signs to show account acceptance. The firm separately records each person authorized to transact for a legal entity.
What Does Know Your Customer Add?
The firm uses reasonable diligence when opening and maintaining every account. It must know and retain essential facts about every customer and the authority of each person acting for that customer.
Essential facts are those needed to:
- service the account effectively;
- follow special handling instructions;
- understand each person’s authority; and
- comply with applicable requirements.
Customer identification asks whether the firm can reasonably verify true identity. Know Your Customer covers the broader facts needed to service the relationship and understand authority. Completing identity verification does not complete the broader obligation.
What Do Standing Settlement Instructions Do?
Standing settlement instructions are reusable settlement directions kept for the account. Operations uses them to handle settlement after a trade. They do not establish customer identity, prove that a person may transact, or replace the account acceptance record.
What Should You Check on Exam Day?
- Collect the four identifying items before opening, subject to the taxpayer-number procedure.
- Separate pre-opening collection from verification, which may occur within a reasonable time before or after opening.
- Record customer identity, responsible persons, acceptance, and persons authorized to transact for a legal entity. If multiple people share responsibility, record each person’s scope.
- Distinguish identity verification from the broader duty to know essential customer facts and each person’s authority.
- Treat standing settlement instructions as settlement directions, not proof of identity, authority, or account acceptance.