Client Discovery & Account Opening

Client Discovery and Account Opening

• Client discovery and the account opening process are vital for maintaining accurate client records
• Client discovery and account opening include procedures for opening accounts and preventing anti-money laundering
• It is important to recognize the importance of properly completing the account application
• It's also important to understand account disclosure requirements, including the Relationship Disclosure Document
• Key to client discovery and account opening is identifying the procedures for maintaining client records

Introduction

• Opening an account is an important step in establishing a client relationship, providing an opportunity to review all aspects of the client's financial situation
• Client discovery involves asking questions and getting to know the client
• Opening additional accounts for existing clients allows a review of their situation and updates to their documentation, if needed
• Registered Representatives (RRs) must evaluate and document a client’s background, which forms the basis for future recommendations
• Every interaction with clients provides an opportunity to understand their objectives and constraints

Opening Accounts

• As an RR, you are responsible to both the client and the dealer member, maintaining high standards of integrity
• Always prioritize client interests and update client information to ensure recommendations are appropriate
• Cautionary advice is necessary if a client's order seems unsuitable based on their account documentation
• Ensure recorded objectives and risk factors remain suitable, and update suitability information if significant changes occur in their circumstances
• The Know Your Client (KYC) rule is essential and starts during client intake, continuing throughout the relationship
• Dealer members must learn and stay informed about every order, account, and client they accept
• KYC compliance means collecting sufficient information about a client’s personal and financial situation, investment needs, knowledge, risk profile, and time horizon
• Suitability should be assessed in relation to concentrations, liquidity, costs, and alternative actions
• Variables to consider for suitability include age, marital status, occupation, income, net worth, dependents, and risk profile

The Account Opening Stage

• RRs must get sufficient client information to make appropriate recommendations and manage accounts consistently with investment objectives
• Lifestyle questions include retirement plans, financial needs for retirement, and dependents
• In-person meetings and involving family or friends help ensure accurate and up-to-date account applications
• Regular updates of new account information are needed, like on an annual basis
• Steps ensure advisors and firms have needed client info to determine if investments are appropriate

Client Identification and Anti-Money Laundering

• RRs must identify and combat money laundering and terrorist financing
• Anti-money laundering (AML) and anti-terrorist financing (ATF) integrate with KYC obligations
• The Canadian Investment Regulatory Organization (CIRO) has rules for account opening, requiring that dealer members obtain and maintain customer information and essential facts
• Account opening procedures should enable risk-based assessments of clients, their income sources, and expected account activity
• This helps determine needed extra customer information/documentation and whether accounts like offshore accounts require extra monitoring and due diligence

Client Discovery and Red Flags

• During client discovery and throughout the relationship, advisors and staff must watch and assess client behavior for potential money laundering
• Red flags are warning signs of improper activities
• Client discovery and ongoing interactions are not only critical for fulfilling responsibilities to the KYC but also for preventing illegal activities
• Identification and verification alone are not sufficient; professional judgement is needed
• Simply following the guidelines may not be enough

Account Opening Red Flags

• Effective AML/ATF programs use red flags to identify potentially suspicious transactions related to money laundering or terrorist financing
• Red flags include reluctance to provide information, altered documentation, photocopied documents, or attempts to open accounts under other names
• Red flags include that the supplied information seems vague, untrue or providing an out of the service area address

General Anti-Money Laundering Due Diligence

• AML procedures are based on the risk of particular types of clients being involved in money laundering
• Policies require extra due diligence in bank secrecy jurisdictions or countries with high corruption
• Extra info and documentation is needed about corporations, trusts, and offshore entities
• Particular attention should be paid towards clients who deal with cash, are prominent people, or have suspicious transactions

Risk and Money Laundering

• Politically exposed persons (PEPs), their family, and associates pose a money laundering risk
• Foreign PEP accounts are a bigger concern than domestic
• A foreign PEP is someone holding office for a foreign state, including their spouse, child, parents, or siblings
• This includes figures holding positions in a national state, not lower level
• Foreign PEP accounts need senior management approval within 30 days
• Account updates are expected as changes occur
• Domestic PEP accounts must also be assessed for money laundering risk and are subject to the same controls

Regulations

• Anti-money laundering(AML) regulations require identity to be verified for anyone opening a securities account before transactions
• All authorized persons giving instructions must be verified, applying to both individuals and corporations
• CIRO’s client identification refers to KYC suitability obligations not specific verification documents for FINTRAC
• There is no expectation to repeat a client's identity process, unless there is doubt

Account Updates and Potential Risks

• Dealer member compliance needs procedures to regularly review higher-risk accounts for money laundering
• Reviews detect profile changes of the client, and ownership structure changes for non-individual accounts
• AML/ATF regimes need a program rating accounts by risk, evaluating accounts for potential money laundering
• High risk accounts include offshore and PEP accounts
• Evaluate and update client data/investment objectives to look for unusual activity and documentation

Anti-Money Laundering Procedures for Corporate Accounts

• Open accounts for a corp, trust, or similar entity must gather customer information
• Info is needed on settlors, known beneficiaries of a trust
• Individuals who own or control 25% or more of the entity has to be identified, directly or indirectly
• Firms must record info and reasons it cant be obtained
• The account should be restricted to liquidating trades and transferring assets if the information is not retrieved within 30 days

Non-Resident Accounts, Offshore Clients and Institutional Accounts

• Non-resident individual accounts have extra ID verification requirements

• Verify the registration requirements

• Dealer evaluate whether the foreign jurisdiction subject to any money laundering concerns for foreign jurisdiction

• Procedures should be in place to identify PEP accounts

• Be aware when offshore clients is unwilling or unable to provide detailed ownership information

• Must have AML/ATF procedures to cover Institutional clients

• Institutional clients are are usually financially sophisticated who purchase/sell securities in large amounts

• These clients are often well known, regulated, and publicly held

Institutional Accounts and Brokerage Dealings

• Dealer may have little direct contact with the beneficiaries of institutional clients
• Instead, they deal through intermediaries, such as investment funds
• Institutional accounts are sometimes solely for trade execution, creating a limited relationship between the client and broker
• CIRO rules need dealer members dealing with institutional accounts to have supervisory reviews
• These must be designed to detect money laundering

Personal Identity Documents

• Policies regarding using the internet for opening accounts need to be developed
• Whether using electronic signatures or online applications, PCMLTFA rules still need to be followed
• Must verify the original identifications (such as driver license) over photocopies

The Account Application

• Complete an account application that is printed or electronic
• Includes client and the dealer member
• Account applications need client identity, full name, address, citizenship, and tax information for a new client

Necessary Information to Collect on Application

• Gather personal and financial documents
• Financials include income, net worth, and liquidity
• This and more helps the firm establish a course to establish the legal relationship between the member and customer

Application Information Use

• Collect information when applying
• Collect for client identity
• Need it to meet all obligations for suitability
• Need it to judge credit worthiness
• The application is needed is the client has insider statue

In addition to Completion

• Need to keep notes
• Application needs to get signed for approval
• In addition, it will form the legal framework and have several functions as follows

Review of Completion

• Review existing accounts and applications for new clients
• Trigger the application for update such as name change
• Major financial change etc also have a factor
• The discussion needs to document and determine if an update is needed

More so for Reviews

• Security is delivered to the client
• Becoming aware of security changes
• Should have annual discussions with each client
• A registered individual gets designated

Defining Information For Application

• Information for application needs following
• Client, account and register
• Will differ when establishing account
• The categories for information will be discussed in detail

Name

• Correct name used over a shortened abbreviation to help prevent deception
• Numbers or symbolic over name requires at its office in Canada identification of the account

Address

• Permanent address to comply with the firms securities and ATF
• Statement needs to be delivered

Mailing

• It’s a complex to inter mean the mailing of information Contact Number
• Needed to gather as much information required for immediate communication

Other

• Client birth date is important to prevent any deregistration
• Opening a account needs detail

Minors Opening Account

• Cannot have under any circumstances accounts by minor due to them being repudiated when there an adults

Citizenship information

• Need to be made aware due to cultural significance Citizenship information
• Need for tax purposes
• Employment information is needed to establish creditworthiness

Marital Status

• Needed to make sure of the client current situation and objectives
• Guaranteer need to have the obligation to determine the proper course

Credit and Finances

• Credit is must in extending clients
• The clients ability to be suitable from multiple incomes

Investment and Knowledge

• Discussions will disclose much required information in clients wealth
• Review clients to indicate their investment objectives and wealth
• Assess tolerance
• Documentation is key

Information on Account

• Type of account
• Beneficial ownership
• Delivery procedures
• Special instructions

Account Type

• Determining suitable for each client as per the various types
• Cash: Securities must settle
• Margin: Financing agreement occurs
• DAP: Intermediary acts
• Settlement agents pay it in full

Rap and Registered

• Rap operates the same was a DAP just security needs to be sold by the client rather then purchased
• Registered: Tax deferred for those accounts

Investment and Employee

• Setting up clubs by an agreement
• In turn, an RR must act as supervisor
• Investment can be limited

Permission

• Discretion to the clients behalf if given temporary permission
• Restrictions on the types of trades and authorization signatures

Authority

• Rules need all accounts to be correctly noted at all entries
• The types and terms of order as long with certain other terms are also a factor

Managed and POAs

• Ongoing trading to be made with the dealer
• Encourage a POA as well
• A PM can offer discretionary rules
• An update in the investors stated objective

Other Considerations

• Must know beneficiaries of an account
• Should all be able to satisfy the KYC requirements
• Verify that they are aware of the possible investment the made

Payments

• Need all payments to have a standard
• Any other 3rd party is a warning
• RR must do their due diligence
• Need as RR of the states and provinces qualified to operate in

Signatures

• All signatures and deliveries needs electronic signature and proof that the form follows all by laws under the electronic rules

To maintain key records, ensure your firm provides you with a record keeping system. Key things that you will need include:

Account Application

Have at hand when executing trades Shows clients objectives and risk profile. Verify and update Clients circumstances need to be altered to application

Portfolio Record

Shows holding for quick reference

Security Cross Reference

List the holdings for your firm. Should something develop with investment, you can contact all the clients that are concerned

Correspondence All incoming mail correspondence is key to reviewing. Be aware that sending non business mail to the business has its conflicts

Records, Orders, and Summary

Consult your supervisor before removing any documents Full details of a trade need to be made. Must know how to deliver Opening an account creates an important piece of information Must avoid many illegal, laundering, and terror situations

Learn the client discovery and account opening process. Understand procedures for opening accounts and AML prevention. Recognize the importance of proper applications and disclosures.