FINRA Rule 2090 is called "Know Your Customer (KYC)". It requires member firms of FINRA (brokerage firms) to use reasonable diligence to gather and retain essential facts about their customers. This helps ensure that firms understand their customers' investment needs and risk tolerance, and can provide suitable recommendations and services.
Here are some key points about FINRA Rule 2090:
Applies to all accounts: The rule applies to all accounts opened and maintained by member firms, regardless of the type of investment or account size.
Reasonable diligence: The level of diligence required is based on the specific circumstances of each customer, such as their investment experience, risk tolerance, and investment objectives. However, it should always be sufficient to gather the necessary information to fulfill the rule's requirements.
Essential facts: These are defined as the information needed to:
Effectively service the customer's account: This includes understanding their investment goals, risk tolerance, and financial situation.
Act in accordance with any special handling instructions: This may involve specific account limitations or restrictions.
Understand the authority of each person acting on behalf of the customer: This includes verifying the identity and authority of individuals who can make transactions on the account.
Comply with applicable laws and regulations: This includes anti-money laundering and terrorist financing regulations.
Continuous obligation: The rule is not a one-time exercise. Firms must continue to gather and update information about their customers throughout the relationship.
FINRA Rule 2090 plays a crucial role in protecting investors and ensuring the integrity of the financial markets. By understanding their customers, firms can better serve their needs and avoid potential risks.