Client Discovery and Account Opening

Client Discovery and Account Opening

• Client discovery and all aspects of the account opening process are covered
• Procedures for accurate record maintenance are included

Learning Objectives

• Procedures for opening accounts, including anti-money laundering will be explained
• The importance of the account application is realized
• What constitutes completion of the account application is described
• Account disclosure requirements, such as the Relationship Disclosure Document is understood
• Procedures to maintain records are identified

Key Terms

• Beneficial owner is defined in a glossary
• Cash account is defined in a glossary
• Client discovery is defined in a glossary
• Delivery against payment is defined in a glossary
• Discretionary account is defined in a glossary
• Insider is defined in a glossary
• Managed account is defined in a glossary
• Margin account is defined in a glossary
• Politically exposed person is defined in a glossary
• Power of attorney is defined in a glossary
• The Proceeds of Crime (Money Laundering) and Terrorist Financing Act is defined in a glossary
• Red flag is defined in a glossary
• Registered account is defined in a glossary

Introduction

• Opening a new account gives both you and the client an opportunity to review all aspects of their situation
• This stage is also known as client discovery
• This is a period where both parties ask questions
• Opening an additional account provides you the opportunity to review the situation and amend documentation if necessary
• It allows you to evaluate and document a client’s background
• Information from this stage forms the basis of future recommendations
• Every interaction helps an advisor know their clients better

Opening Accounts

• RRs are responsible to both the client and dealer
• You must be ethical
• Standards of conduct provide a framework for responsible dealings with clients

The Cardinal Rule & KYC

• Always keep in mind client’s interests are paramount
• Constantly update all client information
• Follow the Know Your Client (KYC) rule
• Provide cautionary advice if an order appears unsuitable
• Ensure the recorded objectives and risk factors continue to be suitable
• Update client’s suitability info if there are significant changes in circumstances
• The KYC rule is the foundation of all client dealings and the obligation starts during the client intake process
• Compliance ensures the firm has collected enough info about the client’s personal & financial situation
• Compliance also takes into account the client's investment needs, objectives, knowledge, risk profile, and investment time horizon
• This information is required to determine suitability for the retail client in a way that puts the client's interest first
• Suitability must also be considered in light of the concentration and liquidity of securities within the account
• Assess the impact of costs on the retail client's returns
• Consider a range of alternative actions

Suitability Variables For Clients

• Age, marital status, and occupation are variables to consider
• Income and net worth are variables to consider
• The number of dependents is a variable to consider
• Risk profile is a variable to consider
• Investment objectives are variables to consider
• Investment knowledge and experience are variables to consider
• Investment time horizon is a variable to consider
• The account's current investment portfolio composition, duration, and risk level are all variables to consider
• A client’s age and life stage are critical components of an investor’s KYC profile
• Firms can hire skilled and knowledgeable advisors to apply a robust initial KYC process
• Regular revisits to update the KYC information and review the advice and strategies
• Follow-ups are important with senior investors

Obtaining Information at the Account Opening Stage

• RRs must obtain sufficient information to ensure recommendations are appropriate
• Recommendations must be consistent with investment objectives
• Ask questions that broaden the conversation
• Document the client's response to lifestyle questions
  • When do you plan to retire?
  • How much money do you need to retire in the fashion you want?
  • Do you have any other issues or expenses that we should contemplate as you retire?
  • Do you have children or grandchildren who are dependent on you financially?
  • Do you have a will and a financial power of attorney?
• Require in person client meetings to fill out the account application
• Ensures that all investor information is accurate and up to date
• Encourage the client to bring a trusted family member or friend to meetings
• Require frequent updates of new account information such as on an annual basis
• These steps help ensure that the firm has the information about clients at the account opening stage

Client Identification Requirements & AML

• RRs play an important role in combating and detecting money laundering and terrorist financing
• All employees with direct client contact have important roles
• Employees who monitor daily activities have important roles
• Any employee who does not diligently fulfill reporting responsibilities under PCMLTFA can face a prison term of up to five years and a fine of up to $2,000,000
• Anti-money laundering and anti-terrorist financing (AML/ATF) procedures are typically incorporated into existing KYC obligations
• CIRO sets out the rules for account opening procedures
• For each account opened, a dealer member must obtain and maintain certain customer information
• Procedures emphasized that dealer members must request essential facts relating to the customer
• Account opening procedures should let you assess the client's risk based on income and source
• Account opening procedures help you determine what extra customer information and documentation is needed for the clients
• Account opening procedures help you to determine whether a particular account, such as an offshore account, requires additional monitoring and due diligence.

###Client Discovery Process

• The RR or Registered Staff is best positioned to evaluate client behaviour from a money laundering perspective
• Look for red flags
• Red flags are warning signals of improper activities
• Red flags may indicate money laundering or terrorist financing activities
• Client discovery and ongoing interactions are critical for KYC and the prevention of illegal activities
• Client identification and verification is are not sufficient
• Exercise professional judgment and seek help where necessary
• Opening accounts and dealing with clients must both be done with good judgement

Account Opening Red Flags

• Effective tools a dealer member can implement to assist employees in preforming their duties relating to AML/ ATF is an effective red flag program
• Any red flag should raise suspicion that there is a reasonable chance that a transaction is connected to a money laundering offence or terrorist financing activity
• Any of the activities or behaviors may raise red flags during opening

Red Flags

• Reluctance to provide adequate information or supporting documentation flags
• Documentation that appears to be altered or counterfeit, or if all of the documents have recent issue dates flags
• Documents that are photocopies, facsimile images, or other electronic reproductions, even when certified as true copies by an attorney acting on the client's behalf flags
• Attempts to open accounts in other people's names flags
• Supplying information that seems vague or even potentially untrue flags
• Providing an address that is out of the local service area flags
• Providing a post office box, general delivery, or other type of mail drop address when a street address is the norm for that area flags
• Providing a phone number where the client cannot be reached flags
• Making inquiries that suggest a desire to avoid reporting flags
• Reluctance to complete or supply required documentation flags
• Inquisitiveness about compliance and anti money laundering procedures flags
• Attempts to use aliases or open accounts using different names flags

General Anti-Money Laundering Due Diligence

• Money laundering procedures must be established on the basis of the risk that types of clients may be involved in money laundering

Policies Firms Must Impose

• Use extra due diligence with clients from bank secrecy jurisdictions or countries with high levels of corruption
• Provide extra information and documentation about corporations and trusts, particularly private offshore entities
• Pay particularly close attention to the following clients
  • Deal with cash businesses
  • Close associates who are in a prominent position of public trust
  • Clients who have suspicious transactions filled in their accounts

Did You Know

• Clients with prominent positions of public trust, their families. and close associates are PEPs
• Foreign PEPs are generally a concern from a money laundering perspective
• To identify a Foreign PEP:
  • Anyone who has held an office or position in a foreign state
  • That person's spouse, common-law partner, child, mother, father, brother, or sister
  • The spouse's or common-law partner's mother or father
  • Definition of a foreign PEP covers only those holding national state positions, not those holding provincial or municipal offices
• Accounts for a foreign PEP must be approved by senior management within 30 days of opening for enhanced monitoring
• Domestic PEP accounts must be assessed for risk of money laundering and if it is high, the accounts are subject to the same controls

Anti Money Laundering Regulation Guidelines

• Anti money laundering regulations require that to verify the identity of the personnel opening any securities account that information must be established before any transactions, other than an initial deposit
• That Limited exceptions, the identity of all persons authorized to give instructions may not be verified this applies not only to accounts for certain individuals but also for firms and any entities
• CIRO standards refer to client profiles. Including KYC and suitability.
• Not specific to the identity documents in order to verify a client solely for the purposes of Financial Transactions and REports Analysis Centre of Canada
• You're not expected to repeat the identity verification process unless doubt as to the validation

Account Updates and Reviews

• Dealers should have procedures in place for accounts deemed high risk for money laundering to be looked into
• The procedure must ensure significant changes to client profile and reviewed regularly
• Non-individual accounts need regular reviews for changes to its ownership structure
• Dealer members have programs for the grading of the risk of the accounts to be properly supervised
• Supervisory programs to properly categorize accounts that are a high risk
• Accounts high in risk to include offshore accounts, all PEP accounts, and any accounts for which there was a suspicious transaction
• Should anything change about the customer then update profiles on a regular basis
• Unusual activity that suggest something is a miss
• Examples include if some funds are not able to be reasonably explained or irregularity
• FINTRAC suggests a time of every 2 years for monitoring and is highly suggested so high risk accounts don't trigger concern

Corporate Accounts & Anti-Money Laundering

• Under the PCMLTFA. Private corporations when opening an account for that entity require the gathering of information on both it and the beneficial owner
• The people who own/ control 25% or more of the entity either directly or indirectly must also be recorded.
• The owner of that company must also record information from PCMLTFA
• Information must be obtained reason why must be recorded
• If Information cannot be received within 30 days of opening and the company must restrict liquidating trades or transferring assets out

Non Profit & Anti Money Laundering

• Non-resident accounts have additional identity verification over resident accounts
• It is important that firms are in alignment with the business registration in the counties they want to conduct the business in
• Member dealers also need to consider various jurisdictions that could be subjected to money laundering or the sanctions imposed
• Dealer members must identify PEP accounts when opening accounts for holding corporations and personal investment

Important Note

• Be wary of offshore clients that don't clearly and accurately provide ownership information
• A local resident opening an account for offshore entity must give rise to suspicion
• Enquire as to ownership or the nature of the entity's business
• Nature of the relationship between a resident and an entity
• Registration may not allow providing services living in an offshore jurisdiction

Institutional Accounts & Anti Money Laundering

• Dealer members required to have procedures and rules to properly vet institutional clients
• Clients characterized as operating for customers
• Clients may buy securities frequently
• Clients must be regulated and the accounts must also be regulated

Institutional Clients & Their Nature

• Dealer members only deal thru intermediary
• Intermediaries like investment funds and hedge funds
• May have a relationship with dealer members
• Procedures designed to detect any money laundering and is very important
• All dealer members must use proper due diligence
• Under the PCMLTFA dealer members are exempt from identifying Canadian institutions with verification

Identity Documents

• Member dealers must develop internet account policies
• Verification happens regardless of the method you take
• Original Personal identification must be used to verify identification

The Account Application & Relevance

• Before you open an account, you are required to complete an document that represents the client relationship
• It is executed by an RR (Registered Representative) and needs to include
  • Identity
  • Information (personal)
  • Objectives (investment)
  • Information about Companies (trade)
• There are also notes
• It forms the basis for the legal business relationship
• Must be to all supervisors of this account

Account Application & Supervisor

• In addition to getting your application, you must take notes of various things from the client discovery process along with another process that is completed such as a questionnaire
• You must have this document and all supporting documents reviewed signed and approved by the authorized supervisor
• In 4 reasons and aspects

Applications Use

• Identity is secured
• Information is present to meet expectations
• Creditworthiness
• Whether an insider

Exhibit 5.1

• Shows a sample Account application
• Your dealer member may require this
• All the parties must be present as part of the super vision

Account Applications & Updates

• Update existing accounts & applications when there's big changes
• Important reasons that necessitate an update include
  • Account Name (e.g marriage , divore)
  • Address
  • Martial/ Employment status
  • Financial interest
  • Authorization
  • Finances and Circumstances
  • Investment objectives, and risk
  • Regulatory items
• Significant change can affect the other items
• Amend by resign
• Discuss with client to make sure it is still accurate
• often times members confirm it to show its proper with it being sent out with the dealers members

Reviews

• These may result in client KY information
• Provides excellent opportunities for what kind of discussion
  • Lend support to prove we know our client

Case Study

• Provides a fictional client named Jane who is an RR member with their account in question with the clients objectives

Completing

• 3 components that constitute proper completion
  • Client information
  • Account information
  • Registrant information
• Info for components that are important

The Clients List - Required

• Open the account in the clients correct way
• Can prevent any deceptions such as incorrect names

Accounts (Contidiential)

• Dealer allowed to maintain a confidentiality when clients ask
• Principal account must always be available
• The account must at all times meet what they request as a regulator

Address (Home)

• To get home and business to stay to be in compliance
• Mailing address must be available to send trades

Home Address

• If Not then you need to proceed with caution and address it
• No circumstances will they allow you to see clients mail

Mail

• Its important to get your home of a real number

###Phone

• Gather as much information
• Contact them if necessary and verify it

Tax # And Number

• If They refuse to you will consult
• Number is important

Birth Date

• To prevent anything from happening in the future

###Did You Know?

• Investors make plans to be prepared for the future
• In order to get consent to contact that person

Rules

To not open contracts made by minors Under restrictions They can't vote Lack capacity Earned income

Quebec Code

• 18 is the age of full
• Can reduce their obligation

Citizenship

• Can purchase certain securities
• Known to be important

Notes for all types of accounts

• Individuals must need that info if it is being used
• Make sure to be responsible with the info

Non Resident Note

• Need additional identity verification

###Account When a member has a political account they need documentation

Client Information

• Employment details
• Help with credit worthiness -See if any other regulatory issues is present
• Evaluate loses

Marital (Legal) Stats

• Client's stats has both a financial and legal relationship that needs to be maintained -Spouse -Objectives

Important Information and Points

• Make sure that that they sign documents
• Should never feel forced to sign a document they do not want

Financials

• Info is basic to tell with Creditworthiness and to help the overall process
• Is very important during a new client's discussion
• All parties need to say an opinion
• Total value is all assets

Income

• Only one figure is required

More About Clients

• Important to have understanding to any figures

Knowledge

• Will discloser matters and it helps
• You assist and determine this level

Investment (Info)

• You start to determine their plans

Safety and Growth

• Needs to be determined what funds should be allocated

Risk Tolerance

• Assess their capacity
• Obviously needed to remember timelines

Account Information (Important Aspects)

-Type

• Ownership
• Payment procedures
• Instructions

Account (Types) - How To (Identify)

• Each type is important as some are more suitable for other items
• There are some cases of certain activites

Cash (Details)

• Deposits must be made in complete to cover sales that also complete completely.

Margins

• Payments must be full for the purchase and dealers credit portioned

Payment Information

• For security to be available, clients cash should to be enough

Deliveries

• DAP payment includes payments from agent (Financial instituation)
• Security cannot show in client's accounts if it was possessed

Additional Notes

1. If things proposed to not be normal need to be approved
2. Client then needs to pay fully before delivery

Receipt (Process)

• As described but is for securities
• Needs money to be transferred

Important Note

DAP is normal in institutions and commonly comes together for one account

Important Registered

• This refers to a tax-deferral and registered by the CRA (Canda)
• Examples of different accounts include RRSP , RIF and RESPS

Account Points

1. Rules are constantly changing
2. Type limits you have for certain situations

Professional Tips

• It is industry to have employee with related company be the client -Common name is being a "pro" account

Investments

• Must meet that club
• Names addresses ect
• Have one to make trading

RR Info

• Account are professional
• Cannot authorize

Accounts

• Need documentation for supervision
• Need confirmations going on

Discrentionary

• Members help choose securities for client
• Clearly why needed
• Has a limit of 12 months
• Both the client and dealer must sign

Discretion & Management

• All discretionary orders will be marked that way
• To conduct to to trade clients have to approve clients to perform for others
• If the securities of the two are traded no can handle them
• The representitives can be handled if they get accepted with at least 2 years of experience

Order information

• Where the information is presented

designated

• Must be review if something is to happen

Superviso

• Both side can withdrawal
• In writing only
• The time is when it received
• Can be cancelled or 30 days has passed

Key Points For Managed

Made by 3rd Party (With investments decision) CIRO approves dealer to handle compliance

• Not Allowed to excess disretionary authority

The approval

• Written agreement
• Must clearly represent client object for account

Account Type & Review

• A designated supervisor reviews the account quarterly
• Must be accepted with regulation
• Accounts clients for review must also end a written agreement

General Items

• Account for client is followed
• Client information must be written clearly
• Be provided
• Comply equal with client for implementation

Beneficial Oship

Obtaining data on offshore be hard due to jurisdiction laws

• In circumstances that can be identified.
• FIN TRAC details and how it should be done for both entities

Currency Options

• To buy and sell and have all data about them
• To be certain also
• Client need to fully understand any situation to make wise investments

Payment Details

• Securities traded are standard
• Payments cash is available directly but with conditions

All other times, you find ways from warnings

Registrant

• Because we are trying

Licenses

• May register but for this cases please report your matter to the supervision

Jurisdiction and other

If there is other places it be done must to properly address them to see when it can

Source (Client)

• What could cause them to find you
  • They can refer you
• Try to treat cautiously for the other people

Direct vs Inderict

• Must fully Discloser your interest or if there is an error
• Need their knowledge

Other rules

• Other issues to be told and disclosed

Insides and People

• You might be an insider trading company

Some Notes (Insider)

You cannot

• Sell their securities with knowledge
• Someone Else
• Tell someone else about their securities
• You could not have possession but for legal trading

Banking

• Can help for person that might wish to take loan