1.6 KYC, Account Updates, Disclosures and Escheatment

Tax Documentation: Form W-9 vs. Form W-8BEN

Broker-dealers must secure proper tax documentation to satisfy Internal Revenue Code reporting mandates and establish accurate backup withholding procedures.

FINRA Rule 4512 Customer Account Information

FINRA Rule 4512 establishes the mandatory account record data that every member firm must maintain for each customer account:

1. Customer full legal name and physical residence address;
2. Confirmation that the customer is of legal age in their state of domicile;
3. Name of the associated person responsible for the account, if any;
4. Signature of the partner, officer or manager accepting the account under Rule 4512; separate product approvals may apply;
5. Customer occupation and employer name/address;
6. Notification of whether the customer is an associated person of another broker-dealer (triggering FINRA Rule 3210 notification and consent protocols).

Specified Adults and Trusted Contact Person

Under amendments to FINRA Rule 4512 and FINRA Rule 2165 (Financial Exploitation of Specified Adults):

• A specified adult is defined as any natural person aged 65 or older, or any person aged 18 or older who the firm reasonably believes has a mental or physical impairment impairing their ability to protect their financial interests.
• Broker-dealers must make reasonable efforts to obtain the name and contact details of a trusted contact person (aged 18 or older) for non-institutional accounts and when updating account records.
• The trusted contact person does not have trading authorization or power of attorney. Instead, the firm is authorized to communicate with the trusted contact to address suspected financial exploitation, confirm the customer's current contact information, or verify health status.

Verifying and Updating Customer Records

For covered natural-person account records, SEC Rule 17a-3(a)(17) generally requires furnishing the required profile information within 30 days after opening and at least every 36 months, subject to scope and exceptions. This allows the customer to correct the information; silence is not proof that every entry is accurate.

For a name or address change, send the required notification to the old address, or each joint owner as applicable, and the responsible associated person within 30 days after receiving notice. The rule does not universally require the full profile to be sent to both old and new addresses. Additional authentication can be required by firm procedures.

An investment-objective change generally requires an updated account record within 30 days, with the rule’s permitted statement-delivery alternative. Do not invent income or objectives when a customer declines to provide information. Record the refusal and follow the approved procedure.

Synchronize the account master, tax profile, delivery preferences, cashiering and supervisory systems. Preserve old information and the change history. A request to change both email and bank instructions immediately before a liquidation requires escalation, even if the data fields pass automated validation.

Account Restrictions, Freezes & Deceased Customer Processing

Operations departments must enforce trading restrictions and handle deceased account transitions with absolute fidelity to regulatory guidelines:

Account Freezes and Restrictions

• Regulation T 90-Day Freeze: Triggered when a customer buys and sells securities in a cash account without paying for the purchase in full prior to the sale (a prohibited practice known as free-riding). The account is restricted for 90 calendar days, during which the customer must have full settled cash in the account prior to entering any buy order.
• FINRA Rule 2165 Temporary Holds: Permits a firm to place a temporary hold of up to 15 business days on disbursements of funds or securities if the firm reasonably believes financial exploitation of a specified adult has occurred or is being attempted. The current rule also permits transaction holds. Supporting internal review can permit another 10 business days; qualifying notification to a state regulator, competent agency or court and continued reasonable belief can support another 30 business days, with all required conditions.

Operational Protocols for Deceased Customers

Upon receiving notification that a customer has died, the operations department must immediately execute the following sequential steps:

1. Cancel all open orders immediately to eliminate execution risk.
2. Freeze the account against all new trading transactions and asset disbursements.
3. Mark the account title as "Deceased" in the firm's master database.
4. Revoke all third-party powers of attorney and discretionary authorities, which terminate automatically upon death.
5. To distribute or retitle assets, the operations department must obtain:
   • A certified copy of the death certificate;
   • Letters Testamentary (if the decedent left a valid will naming an executor) or Letters of Administration (if the decedent died intestate and a probate court appointed an administrator), with certification and freshness determined by applicable law and firm procedures;
   • An Affidavit of Domicile certifying the decedent's legal residence at death for state tax purposes; and
   • A state Inheritance Tax Waiver, where required by state law.

KYC, Product Disclosures and Associated Persons

Rule 2090 (KYC) requires reasonable diligence concerning essential facts about customers and persons acting for them. CIP asks who the customer is; KYC also supports account service, authority and compliance. A passport does not establish authority to sign for a corporation or trust.

Rule 3210 generally requires an associated person’s prior written employer consent to an outside securities account in which the person has a beneficial interest, and written notice of the association to the executing firm. Existing accounts when employment begins have a 30-day consent period. On written request, the executing firm transmits duplicate statements, confirmations or transaction data. Product/account exceptions exist; do not assume every outside financial product follows identical rules.

Before options activity, verify approval by the appropriately qualified options principal, delivery of the Options Disclosure Document, and required agreement follow-up. For investment-company purchases, check the applicable prospectus or permitted summary-prospectus delivery process. Illiquid products require truthful liquidity and valuation disclosures; a displayed value does not promise a daily redemption right.

Regulation Best Interest applies to broker-dealer recommendations to retail customers. Its disclosure, care, conflict and compliance obligations differ from merely collecting an investment objective. Form CRS also has its own delivery triggers. Operations checks approvals and delivery evidence and escalates deficiencies; Series 99 alone does not authorize sales recommendations.

An employee requesting suppression of employer duplicates cannot use privacy preferences to cancel Rule 3210 controls. Verify the required consent and disclosure and refer the request to compliance. Conversely, a customer’s employer name alone does not prove associated-person status.

Keep ownership, identity, authority, product approval and delivery evidence distinct. A missing options approval is not cured by calling an order unsolicited. A new trustee needs validated authority; an old signature card does not prove the new trustee’s power. Record the affected activity and the person responsible for resolving each deficiency.

Escheatment and Dormancy

Escheatment transfers abandoned property to the relevant state under unclaimed-property law. Dormancy periods, owner-contact tests and due-diligence requirements vary by state and property type; there is no universal federal dormancy period. Inactivity and returned mail prompt investigation rather than immediate forfeiture.

Identify applicable state rules, attempt required owner contact, document notices and reconcile assets reported or remitted. Preserve records so the customer can locate state-held property later. Never convert dormant assets to firm revenue or suppress required statements.

A buy-and-hold investor may not trade for years while receiving automatic interest. Automatic postings may not satisfy a state’s owner-contact test. Distinguish investment activity from legally sufficient owner contact, and verify the state and property-specific standard before reporting.

Restrictions also differ: sanctions, court orders, identity issues, payment failures, death and exploitation have different scopes and release conditions. Record authority, start date, review date and authorized release personnel. A restriction on a suspicious payment need not block unrelated verified living expenses.

For death processing, determine whether estate, survivorship, TOD, trust or retirement beneficiary rules apply. Stop use of the deceased person’s POA, review orders and pending movements, obtain appropriate authority documents and permit approved activity only by a valid representative. Probate documents are not universally necessary for a valid TOD or survivorship transfer. Reconcile outstanding checks, distributions and corporate actions, and preserve the old title and supporting history.

Sources checked 2026-10-20: FINRA Series 99 outline, FINRA customer accounts, FinCEN CDD FAQs.