FINRA Rule 2090: Know your Customer 

What is FINRA Rule 2090? 

FINRA Rule 2090, also known as the “Know Your Customer” rule, was created by the Financial Industry Regulatory Authority (FINRA). FINRA is the regulator who oversees broker-dealer firms and protects investors. 

The Know Your Customer rule was implemented by FINRA to ensure that broker-dealers understand their customers’ investment objectives, risk tolerance, and financial situation before recommending or executing any investment transactions on their behalf. The rule is designed to help protect investors by requiring broker-dealers to obtain and maintain essential information about their customers, and to use that information to determine whether a particular investment is suitable for a particular customer based on their investment objectives, financial situation, and risk tolerance. 

The Know Your Customer rule is a fundamental aspect of investor protection, as it helps to ensure that broker-dealers make recommendations that are suitable for their customers’ specific needs and circumstances. By obtaining accurate and up-to-date information about their customers, broker-dealers can make informed investment decisions that align with their customers’ goals and objectives. 

Overall, FINRA Rule 2090 emphasizes the importance of establishing a strong and ongoing relationship between broker-dealers and their customers, built on trust, transparency, and a deep understanding of each customer’s unique financial situation and investment needs. 

FINRA 2090 and FINRA Rule 2111 Suitability  

FINRA Rule 2090 Know your Customer and the FINRA Rule 2111 Suitability are both regulatory requirements designed to protect investors. However, they differ in their focus and scope. 

The Know your Customer rule requires broker-dealers to obtain and maintain essential information about their customers, including their investment objectives, risk tolerance, and financial situation, before recommending or executing any investment transactions on their behalf. This rule focuses on understanding the customer and their specific needs and circumstances. 

FINRA’s suitability rule, on the other hand, require broker-dealers to have a reasonable basis for believing that a recommended transaction or investment strategy is suitable for a particular customer based on their investment profile. This includes factors such as the customer’s age, financial situation, investment experience, and other relevant factors. FINRA 2111 focuses on ensuring that the investment recommendation is appropriate for the customer’s investment profile, rather than on understanding the customer’s specific needs and circumstances. 

Examples of FINRA Rule 2090 Violations 

An example of a violation of FINRA Rule 2090, also known as the “Know Your Customer” rule, would be a broker-dealer making investment recommendations to a customer without obtaining or maintaining accurate information about their investment objectives, risk tolerance, and financial situation. 

For instance, let’s say a broker-dealer recommends a high-risk investment to a customer without conducting a proper suitability analysis or understanding the customer’s investment profile. If the customer suffers significant losses due to the investment recommendation, they could file a complaint with FINRA, which may investigate the broker-dealer for potential violations of the Know Your Customer rule. 

In such a case, if FINRA finds that the broker-dealer failed to obtain or maintain accurate information about the customer’s investment objectives, risk tolerance, and financial situation before making the recommendation, they could face disciplinary action, including fines, suspension, or revocation of their license.  

Regulatory actions involving the Know your Customer rule

FINRA has taken numerous actions against broker-dealers for violating FINRA Rule 2090. 

For example, in 2019, FINRA fined a broker-dealer $300,000 for failing to obtain accurate information about customers’ investment objectives and risk tolerances before making recommendations. The broker-dealer also failed to establish and maintain an adequate supervisory system to ensure compliance with the rule. 

In another case, FINRA fined a broker-dealer $1 million for violating several rules, including FINRA Rule 2090. The broker-dealer failed to use reasonable diligence to understand the risks and characteristics of complex products that it sold to retail customers, resulting in significant losses for some customers. 

These are just a few examples of regulatory actions taken by FINRA against broker-dealers for violating FINRA Rule 2090. The rule is an essential component of investor protection, and FINRA takes violations of the rule seriously, as they can result in significant harm to investors. 

FINRA Attorneys for Securities Disputes  

When disputes arise between investors and securities firms or brokers, they may be required to resolve their differences through FINRA arbitration. FINRA arbitration is a process in which an impartial arbitrator or panel of arbitrators is appointed to hear the dispute and render a decision.  

The White Law Group helps clients navigate the arbitration process and represent their interests throughout the proceedings. This can include preparing and filing the initial claim, conducting discovery, presenting evidence and arguments at the hearing, and appealing the decision if necessary.  

In addition to their knowledge of FINRA rules and procedures, the FINRA attorneys at the White Law Group also have experience in securities law and litigation. They can provide valuable guidance to clients on the strengths and weaknesses of their case, the likelihood of success, and the potential risks and rewards of pursuing arbitration.  

If you have a securities related dispute, the FINRA attorneys at the White Law Group may be able to help you. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.  

What Does a Securities Attorney Do?

For a free consultation with a securities attorney, please call the offices at 888-637-5510 for a free consultation.   

The White Law Group has offices in Chicago, Illinois and Seattle, Washington. For more information on The White Law Group, and its representation of investors, please visit WhiteSecuritiesLaw.com.