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Know Your Customer

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Know your customer, or "KYC" refers to guidelines of securities regulators that require each broker to know your customer. Know your customer rules are also called suitability rules because they are concerned with the suitability of securities investment for each specific customer. Know your customer rules make it unethical and against regulations for brokers to recommend investments where the customer is unsuited to absorb the associated risk or loss. For example, the common sense of know your customer rules says a broker should not recommend only risky naked options strategies to a windowed grandmother whose income is supplemented with blue chip stock dividends. NASD's know your customer suitability rule is rule 2310, the NYSE's know your customer is rule 405. Brokerages and other regulators have additional know your customer policies and rules and the SEC has enforcement power over brokerages that require them to maintain know your customer policies. Know your customer rules require both collection of suitability information at account opening and periodic update of suitability criteria.



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