Sales Practice, Suitability, and Know-Your-Customer / Anti-Money Laundering Requirements
Scope
This domain tests sales-practice standards: know your customer, suitability, and anti-money-laundering duties. The exam expects practical judgment, not just definitions.
Core rules
- KYC identifies the client, beneficial owner, authorized persons, source of funds and wealth, investment objectives, horizon, liquidity needs, and risk tolerance.
- Suitability requires a reasonable basis that a recommendation fits the client’s profile. High-risk, concentrated, illiquid, or leveraged products need extra care and documentation.
- Under the Anti-Money Laundering Act (RA 9160, as amended), securities dealers are covered institutions. They perform customer due diligence, enhanced due diligence for PEPs and high-risk clients, monitor transactions, and file suspicious transaction reports with the AMLC.
- Covered transactions are threshold-based; suspicious transactions are reportable regardless of amount. Do not tip off the client. Retain AML records for at least five years.
Worked example
A 70-year-old retiree with PHP 2 million and no other income wants 90% in one small-cap mining stock. The recommendation is unsuitable because of concentration, liquidity, and capital-preservation needs. The salesman should explain alternatives, document the discussion, and, if the client insists on an unsolicited trade, record that it was unsolicited. If the same client deposits PHP 600,000 in cash inconsistent with her profile, escalate for AML review and possible STR.
Traps
Suitability is not a guarantee of profit, and a signed risk disclosure does not cure a bad recommendation. KYC is ongoing, not a one-time form. Confidentiality does not permit tipping off or suppressing an STR.