Which of the following is NOT a requirement when a bank pays an employee a fee for referring a high-net-worth or institutional customer to a broker?
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A. B. C. D.D
When a bank pays an employee a fee for referring a high-net-worth or institutional customer to a broker, there are several requirements that must be met to ensure compliance with regulatory standards. Let's examine each answer option to identify which one is NOT a requirement.
A. The bank must have a written agreement with the broker: This is a requirement under the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations. Banks must establish written agreements with brokers who receive referrals to ensure that the broker is complying with all applicable laws and regulations, including BSA and AML requirements. Therefore, this answer option is a requirement.
B. The bank must give a disclosure to the customer: This is also a requirement under the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regulations. Banks must disclose the nature of the referral arrangement to the customer and inform them that they may receive compensation for the referral. This disclosure must be made before the customer opens an account with the broker. Therefore, this answer option is a requirement.
C. The bank must reasonably believe that the customer is a high net worth or institutional customer: This is a requirement under the SEC and FINRA regulations. Banks must have a reasonable basis for believing that the customer is a high net worth or institutional customer before making a referral. This is to ensure that the referral is appropriate for the customer's needs and that the customer is not being misled or taken advantage of. Therefore, this answer option is a requirement.
D. The employee must be registered with the bank's regulatory agency: This is NOT a requirement when a bank pays an employee a fee for referring a high-net-worth or institutional customer to a broker. However, the employee may need to be registered with the regulatory agency that oversees the broker (e.g., FINRA) depending on the circumstances. Therefore, this answer option is NOT a requirement.
In summary, the answer to the question is D. The employee does not need to be registered with the bank's regulatory agency. However, they may need to be registered with the regulatory agency that oversees the broker, depending on the circumstances. The other options (A, B, and C) are all requirements that must be met when a bank pays an employee a fee for referring a high-net-worth or institutional customer to a broker.