Client Discovery and KYC

Introduction

• The opening of a new account gives both the Registered Representative (RR) and the client an opportunity to review aspects of the client's financial situation
• This review allows the RR to make investment recommendations suitiable for the client, and is known as client discovery
• RRs shoud evaluate and document background
• Information forms the the basis of future recommendations

Opening Accounts

• RRs have a responsibilty to the client and the dealer, and must display high standards of integrity
• Standards of conduct act as a framework for responsible client dealings
• These standards begin with duties when placing orders

The Cardinal Rule: Know Your Client

• RRs must prioritize clients' interests
• RRs have a duty to constantly update client information to ensure recommendations remain appropriate
• KYC rules dictate that cautionary advice should be provided if a client's order seems unsuitable based on account documentation.
• Recorded objectives and risk factors should remain suitable
• Significant changes in a client's situation require updating suitability information
• The KYC rule represents an ongoing obligation from client intake onward
• Every dealer must learn/stay informed of facts related to every order, account, and client
• Compliance ensures firms collect sufficient data on personal/financial circumstances, investment needs/objectives, knowledge, risk profile, and time horizon
• Information is necessary to determine suitable investments
• Suitability factors must be considered, including concentration/liquidity of securities, the impact of costs, and alternative options

Client Variables & KYC

• Age, marital status, and occupation
• Income and net worth
• Number of dependents
• Risk profile variables include investment objectives, knowledge, experience, time horizon, and current portfolio details
• A client’s age and life stage must be components of a Know Your Client (KYC) profile
• One effective way for firms to comply with KYC obligations is by employing skilled and knowledgeable advisors, robust KYC processes and regular reviews when dealing with senior investors

Obtaining Information at Account Opening

• Adequate information about clients is needed to provide suitable investment recommendations
• Client accounts must be managed in line with investment objectives
• RRs use the account opening process to ask lifestyle questions including:
  • Retirement plans
  • Retirement expenses, children or grandchildren dependency, and financial powers of attorney is important
• Require in person meetings with clients filling out the account application
• Encourage client participation from family or friends
• Update client on new account information annually
• Steps ensure both parties learn what clients need at the opening stage for investment appropriateness

Client Identification and Anti-Money Laundering

• RRs help in combating money laundering and terrorist financing
• Procedures combating money laundering and anti-terrorist financing (AML/ATF) incorporates KYC obligations
• The Canadian Investment Regulatory Organization (CIRO) requires dealer members to gather/maintain customer details for every account
• Procedures emphasize that dealer members request essential customer facts

Account Opening Procedures

• Provide information necessary for a reasonable, risk-based assessment
• This includes knowledge of the source of income and expected account activity
• This knowledge helps determine what extra customer data/documentation to get and can determine if certain accounts require additional monitoring

Client Discovery & Red Flags

• The client discovery process along with continued RR/staff evaluations helps identify potentially suspicious money laundering behaviour
• Observed client behavior may show red flags and indicate money laundering or terrorist financing activities
• Red flags are warning signals of possible improper activities
• Client discovery/interactions are critical to the obligation of KYC but also prevents illegal activities
• Client identification/verification is insufficient on its own
• Professional judgment is imperative and helps address various instances
• Follow regulations closely and red flags might indicate client money laundering or suspicious transactions

Account Opening Red Flags

• Effective red flag program is an important tool a dealer implements to assist employees in AML/ATF
• A red flag should raise suspicion that there is a reasonable chance a transaction is related to a money laundering offense or terrorist financing activity
• Some examples of warning flags that may be raised:
  • Supplying vague, untrue, or out-of-area information
  • Refusal to provide information or supply documentation
  • Altered or counterfeited documentation, recent issue dates, photocopies and images, or attempts to open accounts in other people's names
  • Post office boxes or general delivery addresses, inaccessible phone numbers, desire to avoid reporting and use of aliases

General Anti-Money Laundering Due Diligence

• Anti money laundering procedures must assess risk potential of clients involved in laundering
• Firms policies must ensure extra diligence from clients of high corruption or bank secrecy countries
• Provide more information/documentation on corps/trusts, specifically private offshore entities
• Pay a lot of special attention to the clients including: dealing with cash companies, politically prominent, and with suspicious transactions

Politically Exposed Persons (PEPs)

• Clients in positions of public trust, their families, and associates, are politically exposed persons (PEPs)
• Foreign PEP accounts are a bigger issue than domestic PEP accounts
• Foreign PEPs include those holding office in a foreign state, their spouse/partner, child, or family

Foreign PEP Accounts

• Definition of foreign PEPs only covers those holding the position in a national state
• Account for foreign PEP must be approved by senior management within 30 days
• Enhanced monitoring is required
• Domestic PEPs must be assessed for risk of money laundering
• High risk Domestic PEPs accounts are subject to foreign PEP controls

Identity

• Anti-money laundering regulations mandates verification identities and dates of birth when opening an account
• Must be established before any transactions
• Identity must be verified of all the persons with instructions on an account
• Applies to all third parties with authority or corporations
• Overall profile includes KYC and suitability obligations
• Do not repeat the identity process, look out for doubts or validity of documents

Account Updates and Reviews

• Regimes must have procedures for high risk accounts, they need to conduct regular assessment of changes
• Non individual accounts should detect significant change
• All accounts must have AML/ATF risk rating
• High risk counts need a stringent system placed
• Examples include offshore or PEP accounts, or accounts with transaction that are suspicious

Client Profiles and Portfolio

• client profiles are updated when major situations occur
• Update each client's profile
• Significant changes or money laundering should result in updating documentation
• Unusual activity, like increased assets and strange deposit, should occur
• Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) suggest regular updates with periodic reviews every 2 years

Retaining Information

• Retain/file various files
• Guarantees must have trade authorizations and powers of an attorney -In addition, maintain a copy of statements sent

Corporate Accounts

• Under Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) Opening requirements with gathers beneficial owner information
• Includes trustees / known beneficiaries / settlers the trust and people with own greater than 25% of the entity
• Record non obtained data with a reason why

AML Procedures: Non Resident Accounts

• Additional requirements identity
• The countries registration requirement is familiar and to conduct business
• Also assess jurisdiction concerns that may hinder the firm
• Identify any PEP

AML for Institutions

• Must have procedures
• Client opens purchase and assets are financial sophisticated
• Client is usually know and publicly traded
• Institutions will little or no interaction with client. Rather they are managed through intermediaries
• CIRO has set in place to have supervisory reviews that help detect money laundering
• Must have due diligence to learn and adhere to the account
• Members should review third parties and decide if they have the right authority
• They may know client procedure
• Exempt certain identities with third parties that are under similar regulations

Personal Identity Documents

• Need policies that prevent web usage
• They need to review copies and ensure they verify the holder
• Not scanned or reproductive copies

The Account Application

• Key is to recognize account applicants
• Paper or electronically should be done before the account
• Documentation is contract for services
• Becomes of dealer members
• Items are full name, address, citizenship, number and relationship with company

Maintain Information and Documentation

• Maintain notes to designated supervisor who makes four purpose follow
• establish the client and identity / obligation / credit / determine insider
• Information needs available to supervisors

Exhibits

• Exhibits required minimum account
• Copy available to sales office that takes lead for supervision

Updating

• Application requires updating significance for the applicant
• Names should trigger application
• Circumstances that affect clients objectives credit
• Documentation is then resigned
• Client reviews with the review members
• Dealer reviews are sent that help
• If the client doesn't respond to request, they are assigned for completion

Completing the Account Application

• What makes up the application is what makes up a proper application Account and registrant information
• Customer needs
• Name marital status financial objective
• RR verifies client trade

Client Names

• Account should note legal name for fraud and prevent positive issues
• Ensure that they are no abbreviations because that can cause repercussions

Confidential

• Dealers must hold confidential names
• Maintain a identification

Home Addresses

• Must obtain home address for compliance
• Needs for anti-crime and for RR locations
• RR need that

Mailing and Social

• Ensure correct address
• Do not user your personal
• Make sure recipient is real
• Multiple contacts should be requested
• Also SIN for tax purposes

Date of Births and Accounts

• Should be registered for income fund planning in cases where care if for the elderly of minority
• Investors of age prepare for the future to manage

Minors and Citizenship

• Avoid accounts in name because they might be repudiates the contracts for age
• Do what they want

Client Information

• Verify non residents identify and check citizenship for tax

Employment

• Verify credit worthiness
• Evaluate and warrant any potential losses

Marital Status

• Can have great influence on financial and legal needs
• Make sure the guarantor understand
• Review the type of obligation and what the trader needs

Facts and Knowledge

• Review income to measure
• Discuss investment knowledge
• Review clients needs and goals
• Make sure to ask lots of questions

Account Information

• Account information should have components
• Account type, and beneficial currency payment, and procedure and special interest

Cash Account

• Require to be paid in full when a transaction happens
• They should receive payments to see if it is necessary to receive

Accounts Payment and Managed and Other

• Margin needs and requirements
• Delivery with payment needs to happen to the member who performs
• If there is a balance to pay
• Transactions should verify if it is in client needs

Receipt and Registered info

• If one is made payments should match if they are not the same
• Is for institutional accounts
• They registered
• Should be handled in the form
• Has special requirements for each type of account
• Some accounts are automatic and cannot be selected or solicited

Discretionary Accounts

• The one account is where discretion isn't solicited so to the point of selecting order with needs
• Can't use as a person
• Must be approved by supervisor
• Must be handled based on document and handled very easily

Rules for Managed and Discretionary

• Must be made easy
• Person should prove trades from the customer
• Shouldn't hold accounts
• If it is managed must have 3 agreements
• Supervise to make sure it meets clients

Beneficial Ownership

• Info is hard to obtain
• Veil in many forms and they KYC is required it
• Rules for the KYC deal with requirements
• Fin track helps implement
• Verify client in addition

Payment and Instruction and signatures

• Foreign currency should be documented
• Payment and delivery if security trader are standard to the client
• Has interest in many parties
• Registrations are necessary
• License is the RR that should qualified
• Should contact supervisor to figure needs out

Source and Controls

• Must get to know clients through referrals
• Those the approach if the know will do is asked to see with reason
• Follow must disclose of all the account in their situation

Actions

• Is in any way connected to insider should check
• Legal should consult should know account

Actions Cont.

• Accounts show security interest in client
• They should be accurate about clients
• Ensure they follow through to provide power of attorney
• Is easy to verify with ID and what is being tested
• Should be able to determine if they being to credit risk

Delivery and Signatures

• Must be in method should have consent
• All types of forms must have the need to be signed
• Is required consent
• They should have a card
• The dealer must know that the agreement

Client Records

• One has procedures of managing client
• Should implement electronic records on computers
• A point should be available at hand and should go through each part with client
• Make sure a check is available with customer details

Record Continued

• Security in security should be in alphabetical
• Enables you to contact all the client to help develop
• Contact helps clients develop when they have had special care
• The RR helps deem as an agent
• Inbound or a way for the firm must work as well
• The member should be careful to handle in client complaints and activities
• The restricted from clients for legal requirements
• Trade should send what the client knows right away
• They implement and can help

Summary

• Account leads to many credit, financial of great importance to find
• Must have all information in account
• All records are property