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Updated on May 30, 2022

The Financial Industry Regulatory Authority (FINRA) is a nongovernmental organization writing and enforcing rules on registered financial advisors (e.g. broker-dealers) in the United States of America, thus acting as regulatory body for the securities industry.

The main goal of FINRA is to protect investors from losses caused by fraud and misconduct and thus guaranteeing the safety and fairness of the financial markets.

The two regulatory requirements in scope for CLM are:

  • FINRA Rule 2090 (commonly referred to as the “Know Your Customer Rule” or “KYC Rule”)

    This rule requires financial advisors, at the opening of the account and throughout the customer lifecycle, to use reasonable diligence to know the customer and to retain the essential facts concerning the customer and the authority of each person acting on their behalf, prior to providing any recommendation.

  • FINRA Rule 2111

    This rule requires financial advisors to make recommendations on a transaction or investment strategy that are in the best interest of the customer based on the information obtained.

The two aforementioned rules work in tandem, and it could not be otherwise since suitability can only be determined if the financial advisor knows the customer, thus the customer risk profile will limit the investments to those suitable for that customer.

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