New Account Documentation, AML, CIP and KYC
Task 1.1 covers customer classifications, individual and entity accounts, fiduciary authority, required records, customer identification, AML controls, and Know Your Customer duties.
How to study for Series 4
Approach each item as the options principal: identify the account, strategy or activity; calculate the exposure when needed; apply the current rule; and choose the supervisory action that prevents or corrects the risk.
Core concepts
Concept 1
An options principal reviews both the legal authority for the account and the financial and investment information needed for options approval.
Exam cue: When a signer acts for someone else, verify the governing document and the scope of authority.
Concept 2
CIP verifies identity, AML procedures address suspicious activity, and FINRA Rule 2090 requires reasonable diligence to know essential customer facts.
Exam cue: Separate identity verification from the later decision about which options strategies the account may use.
Concept 3
Trust, retirement, corporate, partnership, and fiduciary accounts require documents showing who owns the account and who may act.
Exam cue: Escalate unexplained ownership, source-of-funds, or control information under the firm's AML procedures.
Risk pitfalls and guardrails
Treating a completed application as proof that a fiduciary has authority to trade options.
Guardrail: Avoid answers that treat disclosure as a waiver, confuse account approval with recommendation approval, bypass principal review, shift losses after the fact, or rely on unsupported guarantees.
Confusing customer identification with options strategy approval.
Guardrail: Avoid answers that treat disclosure as a waiver, confuse account approval with recommendation approval, bypass principal review, shift losses after the fact, or rely on unsupported guarantees.
Opening an entity account before beneficial ownership and authorized-person records are resolved.
Guardrail: Avoid answers that treat disclosure as a waiver, confuse account approval with recommendation approval, bypass principal review, shift losses after the fact, or rely on unsupported guarantees.
Memory anchors
CIP
The Customer Identification Program uses risk-based procedures to form a reasonable belief that the firm knows each customer's identity.
KYC
FINRA Rule 2090 requires reasonable diligence to know and retain essential facts about each customer and the authority of persons acting for the customer.
AML Escalation
Unusual ownership, funding, or transaction facts should be escalated through the firm's AML program rather than resolved by the representative alone.
Fiduciary Authority
A fiduciary account needs documentation showing the fiduciary's appointment and permitted powers.
Entity Signer
Entity documents should identify the entity and the people authorized to direct account activity.
Institutional Customer
Institutional classification can change communications and supervision, but it does not eliminate account-opening duties.
Customer Profile
Financial status, tax status, objectives, experience, time horizon, liquidity needs, and risk tolerance support options approval.
Incomplete File
Materially incomplete or inconsistent account records should be resolved before the principal approves options trading.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A new customer asks to trade uncovered equity calls through a revocable trust. Which document should the options principal review first to confirm who may authorize the activity?
An institutional investment manager submits an options application but omits the legal name of the beneficial owner whose assets will be traded. What is the best supervisory response?
Answer all questions to submit.
Next step personalized recommendations
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Move forward only after this module is stable.
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