General Securities Sales Supervisor (Series10) Practice Exam

What must a broker-dealer verify before opening an account for a foreign college student engaging in an import/export business?

1. An address in the home country

2. The customer's family business contacts

3. A local bank account

4. A government identification

The correct answer is: The customer's family business contacts

In the context of opening an account for a foreign college student engaging in an import/export business, the most critical factor a broker-dealer must verify is the customer’s government identification. This is essential for several reasons. First, government identification helps confirm the individual’s identity, ensuring compliance with regulations aimed at preventing identity theft and fraudulent activities. Proper identification assists the broker-dealer in satisfying Know Your Customer (KYC) requirements, which mandate that financial institutions develop an understanding of their customers' risk profiles. Furthermore, for foreign clients, especially those involved in business activities like import/export, verifying government-issued IDs provides additional assurance regarding the legitimacy of the student’s activities and background. This includes ensuring they have valid residency and are legally allowed to engage in business activities in their host country. Verifying an address in the home country or a local bank account carries less weight in establishing the identity and credibility of the foreign client compared to government identification. While those pieces of information may be relevant, they do not serve the primary purpose of identity verification as effectively as government-issued identification. In summary, ensuring that a foreign college student has valid government identification is crucial for risk management and compliance with regulatory frameworks.