FINRA’s Expanded KYC and Suitability Obligations Take Effect on October 7
FINRA’s new know-your-customer and suitability rules have been approved by the SEC and will take effect on October 7 of this year. FINRA expanded the know-your-customer rule to require reasonable diligence not just at account opening but also during the maintenance of the account. FINRA also expanded the suitability rule to include additional factors such as age, investment experience, time horizon, liquidity needs, and risk tolerance. Firms must also consider “quantitative suitability,” which requires an analysis of a series of transactions, which, when taken together, affects turnover rates, cost-to-equity ratios, and excessive trading. Also, the new rules expand suitability for institutional clients.
OUR TAKE: We believe the expanded rules essentially impose a fiduciary standard on brokers without explicitly using the word “fiduciary.”