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Don’t Let This Happen To You, Make Sure to Follow the KYC Rule!


FINRA Rule 2090 (Know Your Customer) requires member firms and their associated persons to use reasonable diligence to determine the “essential facts” about every customer and “the authority of each person acting on behalf of such customer.”  Regulatory Notice 11-02 (SEC Approves Consolidated FINRA Rules Governing Know-Your-Customer and Suitability Obligations) advised that firms verify the essential facts about a customer “at intervals reasonably calculated to prevent and detect any mishandling of a customer’s account that might result from the customer’s change in circumstances.”

Rule 2090 applies to all accounts including UTMA/UGMA custodial accounts.  Generally, when Uniform Transfers to Minors ACT and Uniform Grants to Minors ACT accounts (UTMA/UGMA Accounts) are established, the beneficiary (a minor) becomes the owner of the property at the time of the gift; however, the custodian manages and invests the property on the beneficiary’s behalf until the beneficiary reaches the age of majority, at which point the custodian is required to transfer the custodial property to the beneficiary.

FINRA noted in their 2019 Report on Examination Findings and Observations that some firms did not establish, maintain or enforce a supervisory system reasonably designed to achieve compliance with their continuing obligation to know the essential facts of their UTMA/UGMA Account customers. Specifically, the circumstances concerning the authority of a person acting on behalf of a customer will change in UTMA/UGMA Accounts when the account beneficiary reaches the age of majority. In an article by AdvisorHUB, FINRA Fined Merrill, Morgan Stanley, and Three Others Over UTMA/UGMA Accounts.  Don’t let this happen to you.  Make sure your supervisory policies and procedures are up to date.  Learn how CCG can help at info@cucharalegroup.com.