Client onboarding
What this domain tests
Onboarding is where legal classification, suitability, disclosure, and AML converge. The exam tests whether you can open an account that is both compliant and usable, and document the reasoning.
Core onboarding steps
Classify the client correctly. Under the FMC Act, retail and wholesale clients receive different disclosure and conduct protections; wholesale categories in Schedule 1 include investment businesses, large entities, eligible investors, and certain persons who meet minimum investment thresholds or certify experience. Do not rely on self-certification without evidence and a recorded basis.
Collect identity, address, tax residency for CRS and FATCA, source of funds and wealth, investment objectives, risk tolerance, financial situation, and experience. If advice is given, assess suitability and record why the product is suitable, or why the client is execution-only. Provide the product disclosure statement, terms of business, fee disclosure, and any advice disclosure before the client commits. Obtain signed authorities and verify signatories.
Worked example
A retiree with modest savings and no derivatives experience asks to trade leveraged FX. The onboarding record shows low risk tolerance and a short horizon. The dealer should decline or escalate: the product is not suitable, and documenting the client's instruction alone does not cure the suitability failure. If the client insists on execution-only, the firm must still meet fair-dealing and disclosure obligations.
Traps
Treating a wholesale certificate as proof without verifying the category. Confusing execution-only with no obligations. Failing to refresh CDD. Opening an account before identity verification when the law requires verification before the relationship.