A guideline stated or implied by various securities regulatory bodies which requires that brokers determine the suitability of investments for customers before making recommendations. also called Rule 405 or Suitability Rules.
The duty to ascertain sufficient information about a customer to enable suitable advice to be given.
An ethical foundation of securities brokers that an adviser who recommends the purchase or sale of any security to a customer, must believe that the recommendation is suitable for the customer, given the customer's financial situation.
Securities industry ethics established by exchange rules, NASD Rules of Fair Practice and other authorities regulating broker-dealer practices. In order to satisfy the "know your customer" rules, when opening an account with a brokerage firm, the customer must provide information regarding his financial situation. Based upon the facts disclosed by the customer, the broker must have a reasonable belief that the recommendation they are making is suitable for the customer. See: National Association of Securities Dealers; Rules Of Fair Practice;
An ethical concept that brokers should have reasonable grounds to believe the investment recommended is appropriate for the customer.
Know Your Customer (KYC) is the due diligence and bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them. Typically, KYC is a policy implemented to conform to a customer identification program mandated under the Bank Secrecy Act and USA PATRIOT Act. Know your customer policies have becoming increasingly important globally to prevent identity theft fraud, money laundering and terrorist financing.