Browse Analysis of Managed and Structured Products

17.8.2 New Accounts

Learn about the process of establishing new accounts in accordance with KYC rules, including the necessary forms and information required.

Overview

The first step in adhering to the Know Your Client (KYC) rule is to establish the client’s account in alignment with both securities regulations and the mutual fund dealer’s policies and procedures. This requires a detailed and meticulous approach to ensure compliance and accuracy.

Account Setup Process

Review and Approval

Upon accepting a new client account, it must be reviewed and approved as soon as possible by the person responsible for approving new client accounts at the firm. This ensures compliance with regulatory standards and internal policies.

Confirmation of Client Information

Account numbers should not be assigned until the client’s full legal name and address are confirmed. This step is crucial to ensure the accuracy and legitimacy of the account holder’s identity.

New Account Application Form (NAAF)

A New Account Application Form (NAAF) must be completed for each new client account. This form typically includes the necessary KYC information. If the required information is not included in the NAAF, it must be captured on a supplementary form.

Key KYC Information to Document

Regardless of how the KYC information is documented, it must include, among other things:

  1. Client’s personal information - Name, date of birth, address, contact details.
  2. Financial information - Employment status, income, assets, liabilities.
  3. Risk tolerance - Capacity and willingness to take on financial risk.
  4. Investment objectives - Goals such as capital preservation, income generation, growth.

The last two items, risk tolerance and investment objectives, should be precise enough to allow for an appropriate suitability assessment.

Frequently Asked Questions (FAQs)

Q: What happens if client information is incomplete or incorrect? A: The account cannot be opened until all required KYC information is complete and accurate. Any discrepancies must be resolved with the client immediately.

Q: Can an account number be assigned before full verification? A: No, account numbers should only be assigned after full verification of the client’s legal name and address.

Q: Is it mandatory to fill out a New Account Application Form for every new client? A: Yes, every new client must have a completed NAAF which captures all necessary KYC information.

Key Takeaways

  • Ensure thorough review and approval of new accounts quickly by an authorized person to maintain compliance.
  • Confirm the client’s full legal name and address prior to assigning the account number.
  • Complete and document all KYC information accurately in a New Account Application Form (NAAF) or supplementary documentation.
  • Ensure precise definition of the client’s risk tolerance and investment objectives for suitable investment decisions.

Glossary

  • Know Your Client (KYC): A standard in the investment industry that ensures advisors know detailed, essential information about their clients’ financial situation and goals.
  • New Account Application Form (NAAF): A form used to gather required information for opening a new client account.
  • Risk Tolerance: The degree of variability in investment returns that an individual is willing to withstand.
  • Investment Objectives: The financial goals that a client aims to achieve through investments. These can include capital preservation, income generation, or growth.

Conclusion

Setting up new accounts effectively while adhering to KYC rules ensures regulatory compliance and client trust. It is vital for mutual fund dealers and advisors to follow proper procedures, document all necessary information, and review applications thoroughly.


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## What is the first step in satisfying the KYC rule when establishing a client’s account? - [ ] Obtaining the client's credit history - [x] Establishing the client’s account in accordance with securities regulation and the mutual fund dealer’s policies - [ ] Conducting a background check - [ ] Verifying the client’s employment status > **Explanation:** The first step in satisfying the KYC rule is to establish the client’s account in accordance with both securities regulation and the mutual fund dealer’s policies and procedures. ## Who is responsible for approving a new client account? - [x] The person responsible for approving new client accounts at the firm - [ ] The client's financial advisor - [ ] The branch manager - [ ] The client itself > **Explanation:** Upon accepting a new client account, it must be reviewed and approved as soon as possible by the person responsible for approving new client accounts at the firm. ## When should account numbers be assigned? - [x] After the client’s full legal name and address is confirmed - [ ] When the client submits a photo ID - [ ] As soon as the client agrees to open an account - [ ] Before the client completes the NAAF > **Explanation:** Account numbers should not be assigned until the client’s full legal name and address is confirmed. ## What does a New Account Application Form (NAAF) typically include? - [ ] Client’s credit score - [x] Necessary KYC information - [ ] Detailed investment strategies - [ ] Banking history > **Explanation:** A New Account Application Form (NAAF) typically includes the necessary KYC information. ## What happens if the KYC information is not included in the NAAF? - [ ] The account cannot be opened - [x] It must be captured on a separate form - [ ] The client has to restart the application process - [ ] The information is considered non-essential > **Explanation:** If the necessary KYC information is not included in the NAAF, it must be captured on a separate form. ## What fundamental information must KYC documentation include? - [ ] Client’s employment history - [x] Client’s personal information, financial information, risk tolerance, and investment objectives - [ ] Client's favorite investment strategies - [ ] Client's tax history > **Explanation:** KYC documentation must include the client’s personal information, financial information, risk tolerance, and investment objectives. ## Why must risk tolerance and investment objectives be included in KYC documentation? - [ ] To determine tax liabilities - [ ] To assess the client's employment history - [x] To allow for an appropriate suitability assessment - [ ] To verify client identity > **Explanation:** The client’s risk tolerance and investment objectives must be precise enough to allow for an appropriate suitability assessment. ## How soon after accepting a new client account should it be reviewed and approved? - [ ] Within a month - [ ] Within a week - [ ] Within 48 hours - [x] As soon as possible > **Explanation:** Upon accepting a new client account, it must be reviewed and approved as soon as possible. ## What must be verified before an account number is assigned? - [x] Full legal name and address of the client - [ ] Client’s annual income - [ ] Client’s employment history - [ ] Client’s investment experience > **Explanation:** Account numbers should not be assigned until the client’s full legal name and address is confirmed. ## What is the key purpose of KYC information? - [ ] To determine the client's creditworthiness - [ ] To develop a deep personal relationship with the client - [x] To establish a suitable investment profile for the client - [ ] To monitor client’s market activities > **Explanation:** The KYC information aims to allow for an appropriate suitability assessment based on the client’s personal and financial information, risk tolerance, and investment objectives.

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Tuesday, July 23, 2024