Series 6: 2.1.1.4. Know Your Customer Rule

2.1.1.4. Know Your Customer Rule

The Know Your Customer rule requires broker-dealers to use “reasonable diligence” to collect essential customer information when an account is opened. The rule requires that firms check customers’ identities, investment histories, investment objectives, and sources of funds. This information provides the broker-dealer with some assurance that its customers are not laundering money and assists the broker-dealer in making suitable recommendations.

If the customer does not provide all the information required on a new account form, the account may still be opened, as long as the firm collects certain essential facts. These include facts