Apply Customer Identification Rules - Series 7

1. Which federal rule requires a broker-dealer to establish a Customer Identification Program (CIP)?

   USA PATRIOT Act (implemented via FinCEN CIP rules). The USA PATRIOT Act mandates broker-dealers to implement CIP through FinCEN rules to combat money laundering and terrorism financing.

2. Which two broad methods may a firm use to verify identity under CIP?

   Documentary and non-documentary verification methods. These methods provide flexible options for firms to verify customer identities as required by anti-money laundering regulations.

3. What identification number does CIP generally require for a U.S. person (individual)?

   Taxpayer identification number (typically SSN). CIP requires this for U.S. individuals to confirm identity and comply with tax and anti-money laundering regulations.

4. What is the CIP record retention period for customer identifying information (for example, name and address)?

   Keep for $5$ years after the account is closed. This period allows for regulatory review and ensures long-term compliance with anti-money laundering recordkeeping rules.

5. What is the CIP record retention period for verification records (for example, document type and results)?

   Keep for $5$ years after the record is made. This retention ensures verification processes can be audited for up to five years post-creation under CIP rules.

6. What notice must a firm provide to customers as part of its CIP procedures?

   Notice that identity will be requested/verified to help fight terrorism/ML. The notice informs customers of verification processes, promoting transparency and compliance with anti-terrorism laws.

7. What must a firm do under CIP if it cannot form a reasonable belief it knows the customer's identity?

   Do not open the account or close it; consider filing a SAR. This action prevents potential money laundering or fraud and aligns with regulatory obligations to report suspicious activities.

8. Identify a documentary verification example that satisfies CIP for an individual customer.

   Unexpired government-issued photo ID (for example, a driver's license). Such IDs provide reliable, visual confirmation of identity to satisfy CIP's verification requirements.

9. Which FINRA rule is most associated with collecting essential customer account information (KYC)?

   FINRA Rule 4512 (Customer Account Information). Rule 4512 mandates collecting key data to know customers and maintain accurate account records for regulatory compliance.

10. Identify a non-documentary verification example that satisfies CIP for an individual customer.

    Compare info to a consumer reporting agency or public database. Non-documentary methods use external data sources to corroborate customer-provided information for identity verification.

11. What is the primary purpose of CIP at a broker-dealer?

    To form a reasonable belief it knows each customer's true identity. CIP ensures broker-dealers verify customer identities to prevent fraud, money laundering, and terrorist financing activities.

12. Which four customer data elements must CIP obtain for an individual opening an account?

    Name, DOB, residential address, and identification number. These elements are required under CIP to establish and verify the customer's identity for anti-money laundering compliance.

13. Identify the required action if a new customer name matches an OFAC SDN list entry.

    Escalate and block/reject as required; do not proceed without clearance. OFAC regulations mandate blocking assets and rejecting transactions with matches to prevent sanctions evasion.

14. What does KYC mean in a broker-dealer context?

    Know Your Customer: understand customer identity and risk profile. KYC requires assessing customer details to mitigate risks like fraud and ensure suitable recommendations.

15. What address does CIP generally require for an individual customer (not a P.O. box)?

    Residential street address (or APO/FPO or next-of-kin for exceptions). CIP specifies a physical address to ensure accurate identification and risk assessment, with limited exceptions for military personnel.

16. What records must a firm keep under CIP regarding the customer identification information?

    Records of info obtained and verification methods/results. These records ensure auditability and compliance with CIP's anti-money laundering documentation requirements.

17. Under Regulation S-P, what is nonpublic personal information (NPI)?

    Personally identifiable financial info not publicly available. NPI includes confidential details that, if disclosed, could lead to privacy breaches or identity theft risks.

18. When must a firm provide an opt-out opportunity under Regulation S-P?

    Before sharing NPI with nonaffiliated third parties outside exceptions. Opt-out rights protect customer privacy by allowing control over NPI sharing, as mandated by Regulation S-P.

19. What is the CIP timing rule for verifying a customer's identity when opening an account?

    Verify within a reasonable time before or after account opening. This flexibility allows account opening while ensuring timely verification to meet anti-money laundering objectives.

20. What must a firm deliver under Regulation S-P at the start of a customer relationship?

    An initial privacy notice describing information-sharing practices. The notice ensures customers are informed of privacy policies at relationship onset, promoting transparency under SEC rules.

21. Which FINRA rule requires a firm to know essential facts about the customer and the account?

    FINRA Rule 2090 (Know Your Customer). Rule 2090 obligates firms to understand customer facts for suitability, risk management, and anti-fraud purposes.

22. What identification number does CIP generally require for a non-U.S. person (individual)?

    Passport number and country (or other government-issued ID number). For non-U.S. persons, CIP mandates government-issued IDs to verify identity without relying on U.S.-specific numbers.

23. What is Regulation S-P primarily designed to protect at broker-dealers?

    Customers' nonpublic personal information (NPI). Regulation S-P safeguards sensitive customer data from unauthorized access and misuse by financial institutions.

24. What is the purpose of OFAC screening in the account-opening process?

    To ensure the customer is not a sanctioned/prohibited person or entity. OFAC screening prevents dealings with sanctioned entities, ensuring compliance with U.S. foreign policy and national security goals.

25. Which list is commonly checked during OFAC screening for sanctions compliance?

    OFAC SDN (Specially Designated Nationals) and sanctions lists. The SDN list identifies prohibited parties, requiring screening to avoid violations of U.S. sanctions laws.

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