Customer-Related Activities
This chapter covers the rules that protect customers: account opening, suitability and the best-interest standard, margin, communications with the public directed at retail customers, and the handling of customer complaints and disputes.
Account Opening and Know Your Customer
FINRA Rule 2090 (Know Your Customer) requires firms to use reasonable diligence to know the essential facts about every customer and the authority of anyone acting on the account. New accounts must be approved by a principal, and the firm must gather information needed to service the account and comply with laws. Options accounts and margin accounts carry heightened approval and disclosure requirements.
Suitability and Regulation Best Interest
When making recommendations to retail customers, associated persons must comply with Regulation Best Interest (Reg BI), acting in the customer's best interest and not placing the firm's interests ahead of the customer's. This includes disclosure, care, conflict-of-interest, and compliance obligations, and delivery of a Form CRS relationship summary. FINRA's suitability rule continues to apply to recommendations to non-retail customers. A principal supervises for excessive trading (churning) and unsuitable recommendations.
Margin and Customer Communications
Regulation T governs the extension of credit for securities purchases, setting the initial margin requirement, while FINRA sets maintenance margin minimums. Customers must receive a margin disclosure statement and, for pattern day traders, a specific risk disclosure. Retail communications about products and performance must be fair, balanced, and not misleading, and must be approved by a principal before use unless an exception applies.
Complaints and Dispute Resolution
A written customer complaint must be recorded, reviewed, and retained, and statistical complaint information is reported to FINRA. Most disputes between customers and firms, and between firms and associated persons, are resolved through FINRA arbitration and mediation. A principal ensures complaints are handled and escalated and that required regulatory reporting is timely.