FINRA Rule 2090: Know Your Customer
In 2012 the Financial Industry Regulatory Authority (FINRA) put into effect Rule 2090, unofficially referred to as the “Know Your Customer” rule. In essence, Rule 2090 requires every FINRA member firm to “use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”
According to Rule 2090, this duty comes into effect at the beginning of every broker-customer relationship, even before the broker has made any investment recommendations. The duty remains in effect until the broker-customer relationship has been terminated. Rule 2090 requires broker-dealers and their representatives to retain “essential facts” concerning their customers; these facts include the information that allows representatives to:
- Effectively service the customer’s account;
- Act in accordance with any special handling instructions for the account;
- Understand the authority of each person acting on behalf of the customer, and
- Comply with applicable laws, regulations and rules.
These facts are related to those clarified in FINRA Rule 2111, which requires brokers and investment advisers to make a reasonable effort to discern their customers’ investment profiles, including the customer’s:
- Other investments;
- Financial status and needs;
- Tax status;
- Investment objectives;
- Investment experience;
- Investment time horizon;
- Liquidity needs, and
- Risk tolerance.
It is true that a broker-dealer may not always be able to discern every essential fact, especially if a customer chooses to withhold certain information. In these cases, it is recommended that firms document why certain facts may not be relevant to the suitability determination. If a firm lacks a reasonable basis to determine whether an investment is suitable for their clients, the firm may be held subject to disciplinary action. In cases where a customer has multiple accounts at a single firm, and differing investment objectives for each account, FINRA recommends that the firm documents the customer’s wish to use different investment profiles among his or her accounts.
If you believe that your broker or broker-dealer firm has failed in its duty to use reasonable diligence to recommend suitable investments and investment strategies, you may be entitled to collect a recovery. Call the securities and investment fraud law firm Fitapelli Kurta at (877) 238-4175 for a free consultation. All cases are taken on contingency: we only receive payment if and when you recover money. You may have a limited window to file your claim, so we suggest you avoid delay. Call (877) 238-4175 now to speak to an attorney for free.