Know Your Client (KYC)

Test yourself

Two real CIRE-bank questions on this exact outcome. Click to reveal the answer and the rule citation.

1. 1

   A new client, age 68, indicates she is retired and relies on her investment portfolio for monthly income. She describes her risk tolerance as 'low.' Her registrant recommends a portfolio of 90% equity growth funds on the basis that equities outperform over the long term. Which KYC principle is most clearly violated?

   Outcome 3.1 · click for answer

   A.The identity verification requirement under NI 31-103, because the registrant did not confirm the client's date of birth.

   B.The suitability obligation, because the recommendation is inconsistent with the client's stated risk tolerance, investment objectives, and income needs.Correct

   C.The product due diligence obligation, because equity growth funds are not approved for retail distribution.

   D.The account opening requirement, because the client's age disqualifies her from holding equity products.

   NI 31-103 and CIRO rules require that recommendations be suitable having regard to the client's KYC profile, including risk tolerance, investment objectives, time horizon, and financial circumstances. A 90% equity allocation for a retired client with low risk tolerance and income dependency is inconsistent with those KYC factors on its face, triggering a suitability violation. There is no age restriction on holding equities, and equity growth funds are not categorically prohibited for retail clients.

2. 2

   Under NI 31-103, a registrant must take reasonable steps to keep KYC information current. Which event most clearly triggers an obligation to update KYC before making a new recommendation?

   Outcome 3.2 · click for answer

   A.The client's account has been open for exactly 12 months.

   B.The client discloses a significant life change, such as the loss of employment, that materially affects their financial situation.Correct

   C.The client requests a copy of their account statement.

   D.The registrant changes branch locations within the same dealer member.

   NI 31-103 requires registrants to take reasonable steps to keep KYC information current and to update it when they become aware of a material change in the client's circumstances. A significant life change such as job loss directly affects financial situation, income, and risk capacity and is a textbook trigger for a KYC update. The passage of 12 months alone may prompt a periodic review under dealer policy but does not automatically trigger an update obligation independent of any change in the client's circumstances.

Related terms in KYC and Suitability

• Know Your Product (KYP)

  The firm-and-individual obligation to understand every product the dealer offers.

• Suitability Determination

  The account-level obligation to recommend only suitable investment actions.

• Account Appropriateness

  The pre-suitability check on whether the client should open the account at all.

• Trusted Contact Person (TCP)

  A non-trading contact a client designates so the dealer can address concerns about exploitation or capacity.

• Know-Your-Product (Firm Level)

  The dealer's obligation to conduct product due diligence before placing a security on its approved shelf.

• Know-Your-Product (Rep Level)

  The registrant's personal obligation to understand any product they recommend to a client.