FINRA AML, KYC and Identity Verification Requirements

Secure identity verification processes are fundamental to meeting Financial Industry Regulatory Authority (FINRA) requirements in the U.S.

FINRA is a nonprofit organization that oversees U.S. broker-dealers. Its primary goal is to protect investors and ensure the market’s integrity. FINRA creates and enforces compliance rules under the supervision of the U.S. Securities and Exchange Commission.

The FINRA Manual covers regulations, notices and guidance to help firms and broker-dealers establish compliance policies and procedures. FINRA’s oversight includes ensuring that anyone who sells a securities product has been tested, qualified and licensed.

A Brief Summary of FINRA AML Requirements

Under the USA PATRIOT Act, broker-dealers must have an Anti-Money Laundering (AML) compliance program.

FINRA provides specific AML program guidelines, including those involving a risk-based approach to verification.

“It must be reasonably designed to achieve compliance with the AML Rules,” according to the guidelines, “including, among others, having a risk-based customer identification program (CIP) that enables the firm to form a reasonable belief that it knows the true identity of its customers.”

FINRA account opening requirements include verifying name, birthdate, address and identification number. The identification number for U.S. citizens can be a Social Security or employer identification number. Noncitizens have several options, from passports to taxpayer identification numbers.

If the customer is a legal business entity, the due diligence measures also apply to beneficial owners.

A corporation, partnership, trust or other legal entity may also need to provide:

Principal place of business
Local office
Employer identification number
Certified articles of incorporation
Government-issued business license
Partnership agreement or a trust agreement

A Snapshot of FINRA KYC Requirements

FINRA rule 2090 lays out guidance for Know Your Customer (KYC) compliance.

“Every member shall 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 the rule.”

Those facts about the customer, according to FINRA, are required to:

Service the customer
Understand the authority of people acting on behalf of the customer
Comply with applicable laws, regulations and rules

FINRA rule 2111 covers the suitability of transactions or investment strategies for customers. That requires applying reasonable due diligence to assess a customer’s investment profile by collecting information such as age, other investments, financial circumstance, tax status, investment objectives, liquidity needs and risk tolerance.

Example of AML, KYC Best Practices

FINRA provides best practices broker-dealers have followed to maintain compliance, prevent fraud and uphold their reputation.

Notice 21-18, for example, offers guidance for improving security measures when verifying customers’ identities. Those include:

Validating customer data or documents – such as a Social Security number, address or driver’s license – through, for example, “likeness checks”
Asking applicants follow-up questions or requesting additional documents to validate their identities through credit bureaus, credit reporting agencies or firms providing digital identity intelligence

Streamlined Verification for FINRA Compliance

FINRA compliance can present identity verification challenges. Trulioo can help by providing industry expertise and access to a broad network of data sources in the U.S. that can optimize verification performance.

When organizations blend that data source coverage with services such as Office of Foreign Assets Control and adverse media checks, they create a holistic onboarding strategy that can lead to industry-leading verification rates.

The challenges multiply when organizations verify businesses. But when they access a vast data source network, market expertise and cutting-edge technology, they can accelerate due diligence – from verifying sole proprietorships to unraveling complex ultimate beneficial ownership structures – on any company.

A full suite of in-house verification capabilities and data sources gives organizations that report to FINRA the flexibility to securely onboard any person or entity.