Client Discovery and Account Opening

Client Discovery and Account Opening

• Client discovery and all aspects of the account opening process, including maintaining accurate records, is discussed.
• Client Discovery indicates a period during which the RR (Registered Representative) and the client ask questions and get to know each other.

Opening Accounts

• RRs are responsible to both the client and the dealer member.
• High standards of integrity must be displayed.
• Standards discussed provide a framework for responsible dealings with clients.
• The Know Your Client (KYC) rule represents an obligation that begins during client intake and carries on throughout the client relationship.
• Every dealer member must take reasonable steps to learn and to stay informed of essential facts relative to every order, account, and client that it accepts.
• Compliance with the above rule ensures the firm collects sufficient information about the client’s personal and financial circumstances, investment needs, financial objectives, investment knowledge, risk profile, and investment time horizon.
• Suitability must be considered in light of the concentration and liquidity of securities within the account.
• Suitability must be considered in light of the potential and actual impact of costs on the retail client’s returns, and a reasonable range of alternative actions available to the advisor.
• Consider the following client variables to determine the suitability of a proposed trade: age, marital status, occupation, income, net worth, the number of dependents, and risk profile.
• A client’s age and life stage, investment objectives, investment knowledge and experience, investment time horizon, and current investment portfolio composition, duration, and risk level, play an important role to meet KYC regulations.
• Hiring skilled and knowledgeable advisors ensures compliance with the KYC obligation.
• Advisors must apply a robust initial KYC process, followed by regular revisits with their clients to update KYC information, review advice, and strategies.
• Follow-ups are important when dealing with senior investors.
• RRs are required to obtain sufficient client information, manage accounts consistent with investor's investment objectives, and are responsible for combating and detecting money laundering.
• Any employee who does not fulfill reporting responsibilities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) can face a prison term of up to five years and a fine of up to $2,000,000.

Client Identification and Anti-Money Laundering

• Anti-money laundering and anti-terrorist financing (AML/ATF) procedures are incorporated into the existing KYC obligations.
• Canadian Investment Regulatory Organization (CIRO) sets rules for account opening procedures and requires that a dealer member obtain and maintain certain customer information for each account opened.
• Emphasis is placed on the fact that dealer members must request the essential facts relating to each customer and account.
• Procedures should provide information needed to make reasonable, risk-based assessments of clients, their income source, and expected account activity.
• The above knowledge will determine what extra customer information is needed for certain clients, and determine if an account needs extra monitoring
• The client discovery process and client interactions are critical to the KYC obligation and the prevention of illegal activities.
• Clients in a position of public trust, their immediate family, & close associates are referred to as politically exposed persons (PEPs).
• Foreign PEP accounts are a bigger concern from an AML perspective.
• Foreign PEPs include individuals who hold or have held an office or position in a foreign state, inlcuding, their spouse, common-law partner, child, mother, father, brother, or sister or the spouse's or common-law partner's mother or father.
• Foreign PEP only covers those holding positions in a national state, not in provinces or municipalities.
• An account for a foreign PEP must be approved by senior management within 30 days of opening and is subject to enhanced ongoing monitoring.
• Anti-money laundering regulations require that dealer members verify the identity and date of birth of any person opening a securities account before any transactions, other than an initial deposit, are conducted and the identity of all persons authorized to give instructions on an account.
• CIRO’s client identification requirements refer to the overall client profile, including KYC & suitability obligations.
• There is no expectation to repeat the client identity verification process unless there is doubt as to the client's identity or the validity of documents.

Account Updates and Money Laundering

• A dealer member’s compliance regime includes procedures to ensure accounts higher risk for money laundering are regularly reviewed for significant changes to a client’s profile; non-individual accounts should include reviews to detect significant changes to their ownership structure.
• A dealer member’s AML/ATF regime includes a program of risk rating clients, with accounts categorized according to risk, and subsequently evaluated and supervised.
• Accounts in the high-risk category can include offshore accounts, all PEP accounts, and all accounts for which there is a suspicious transaction.
• There's an expectation to update each client’s profile and investment objectives whenever there is a significant change to a client's situation.
• Any unusual activity that indicates money laundering calls for an update to the client’s documentation.
• Examples of money laundering activity include an increase to account assets beyond the apparent means of the client or an unusual pattern of transfers and deposits.
• FINTRAC guidelines suggest periodic reviews occur every two years.
• More frequent updates may be necessary on higher-risk accounts where transaction monitoring has triggered concerns.
• Enhanced and ongoing monitoring of high-risk accounts should be a routine part of the dealer member’s AML/ATF compliance regime.
• Accounts must be reviewed to determine which ones warrant updates.
• An individual’s account requires retaining new account applications, confirmations of purchase or sale, guarantees, trade authorizations, powers of attorney, joint account agreements, and all correspondence about the account’s operation, with a copy of every statement sent to clients.
• Under the PCMLTFA, when opening an account for a private corporation, trust, or similar entity, specific information must be gathered about both the entity and the beneficial owners behind it.
• Beneficial owners of a trust are the trustees, known beneficiaries, and settlors with corporations having beneficial owners are individuals who own or control 25% or more of the entity, either directly or indirectly.
• RRs must record the source info or record the reason why if the info cannot be obtained.
• Dealer firms must restrict the account to liquidating trades and transferring assets out until the information is obtained if the info cannot be found within 30 days.
• Non-resident accounts with a higher risk need more identity verification than those set out for resident individuals with the firm being familiar with the registration requirements of countries they operate in.
• The dealer member should evaluate whether the foreign jurisdiction in question has subjects to money laundering concerns/ sanctions and prevent proceeds of embezzlement or corruption.
• Procedures should be in place that allow the dealer member to identify PEP accounts to determine whether the account is being set up by, or for the benefit of, a PEP.
• Offshore accounts prompt scrutiny due to unwillingness to provide detailed ownership information but any account that appears that way should be given extra diligence, along with determining the nature of a resident and an entity of an offshore nature, and registration.
• AML/ATF procedures must be in place to cover their institutional business & clients and these accounts are characterised by customers that are financially knowledgable and heavily trade who are well known and regulated.
• Dealer members dealing with institutional accounts must have supervisory reviews and all dealer members use diligence to learn all facts before accepting clients/orders/accounts for an accurate client profile.
• Dealer members should determine to what extent an institution or intermediary has the authority to act and need to know client procedures on certain clients and be aware, whether or not, under the PCMLTFA they need exemptions, and if similar foreign exemptions to follow suit.
• Dealer members must develop internet procedures for identity, and still follow reviewing protocol with original documents and prevent photocopies, scans etc.

The Account Application

• RRs and clients are to complete account applications with key items to note that include; client identity, full name, address, citizenship, social insurance number etc. and client information like status, income, net worth , liquidity, and investment risks knowledge.
• Notes must be made as well in a space specifically for material issues at the time of opening the account must also be maintained.
• The applications is used for legal reasons when establishing identity, suitability, creditworthiness, and insider info.
• The review has a form from the Designated Supervisor of the info, such as supervision staff in the head office etc.
• Updating old information by amending and resigning for all new customers is neccesary when something is going on in the new client account change like of name, address, occupation, another person, financials risks etc. and be updated as there has to be re-confirming discussions to confirm accuracy with the client, or the dealer assumes all is accurate, and checks with clients on their suitability/securities.
• ABC Financial example shows that those things can be identified and what to do about it to remain vigilant with potential client issues and red profile.
• Proper completion has 3 general categories in total basic client info, account info, registrant info with client information being name, phone, situation, income net worth etc. needed for AML procedures

Mail and Social

• Full legal name is important for accurate information and preventing deception.
• Dealer members are allowed to maintain accounts for confidentiality for those using nom names, symbols, or a number.
• Obtaining one permanent residence or business address, you must obtain both is useful for ensuring RR registrants are legal and clients are receiving trade details and confirmation
• Using other addresses by the RR must be avoided as having no PO boxes will have you get correct information, and verifying numbers and identifying and confirming new clients is useful before starting to build relationships.
• Number also required so that supervisor or a new account can be made
• Birth is needed instead of a year for reasons of tax details, RRSP,RIFFs etc prevent any deregistration problems from occurring and should be noted to not having any minors opening up as they have vote issues, can't do all actions that the RRSP can, and contact what needs to have what special documentation and to what you give to the client and firm's policy.
• Under 18 cases need specific laws to be abided by.
• Canadian residents need Canada or share percentages and to where that falls, such as for broadcasting shares etc.
• Non individuals get more identity so that the right accounts are put down etc.

Job

• Needed as well for all client information by credit checking. insider issues and evaluating to what the client's ability to handle risks.Self employed, or others need correct financials for those credit issues.
• Marital must be correct and there must be the correct amount of details for each of spouse needs to be considered and there should be diligence applied with understanding that accounts should be made correct.Financial as well should be correct and can be changed when financial situations alter to be clear or not. For the annual income, use a wise figure and add the details so this needs to be considered with all that you provide and help with KYC and suitability. A low income client to significant net worth needs to be added as a note to not lose it. Discuss the knowledge with clients to see how much guidance is needed.

Risk

• Most cases can be used and should be used in all the client's knowledge or how knowledgeable the two are (certificate and equity), and how participation is used and can't be understood without it, and eligibility. If you must change parts like a lower risk for a timeline you may not be able to do high risk.
• Review investment to decide which money plans the client, and those need to go to percentages and which objectives are used for different accounts to help to get what is more long term.
• Review profile with some assessment of tolerance/capacity. All documentation to use which is needed for the amount and obviously use the timeframe. Follow the questions to determine a risk profile, from the value you want to have or will the client be ok selling, what the portions are to afford to lose, which gets balanced.

Special Accounts

• It is essential to determine which account type is suitable: cash,margin, or delivery.
• Payment can be from a client if they pay in full to which you borrow in short value then sell some accounts from those you know, what all meets the criteria need to be approved.

Money in Other Countries

It should be asked if the account needs to be operated as foreign money as well to make the RR understand if those clients understand fluctuation.

Special Instructions

Lastly, this shows it will handle how the account opening gets done and if it doesn't meet the RR quality and license should be noted with proper provincial registration and permission to do so.

Procedures

In a nutshell, the overall process consists of having certain things to note, such as having to sign documents, understanding all relevant aspects that allow proper actions and records the dealer needs to always be on top of with being able to be as the RR has the knowledge, which allows all parties to have an understanding before it. The person designated must see that all that is understood and can't permit if can't be confirmed if accurate.

Accounts

Separate account, what signatures to file, proxy help, privacy, and different account agreements what to use must be determined first so client and RR are in a successful.