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28 October 2026
Know Your Customer (KYC) and the Customer Identification Program (CIP)
A registered representative is opening a new mutual fund account for "Evergreen Innovations LLC," a newly formed small business. The LLC is managed by its two co-founders, each owning 50% of the company. Mr. David Chen, one of the co-founders, is present to open the account and will be the authorized signatory. To satisfy the Customer Identification Program (CIP) requirements for this legal entity customer, what is the most comprehensive action the broker-dealer must take regarding beneficial ownership?
A.Obtain and verify the identity of both Mr. David Chen and the other co-founder, as each owns 50% of the LLC, and also identify an individual with significant responsibility to control or manage the LLC.
B.Obtain and verify the identity of Mr. David Chen as the authorized signatory and confirm the LLC's principal business address and Employer Identification Number (EIN).
C.Require a copy of Evergreen Innovations LLC's operating agreement and recent financial statements to understand its business purpose and ownership structure.
D.Verify the identity of Evergreen Innovations LLC through public records and confirm Mr. David Chen's authority to act on behalf of the LLC.
Rationale:
The Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Rule requires financial institutions to identify and verify the identity of beneficial owners of legal entity customers. This rule has two prongs: the 'ownership prong' and the 'control prong.' The ownership prong requires identification of each individual who directly or indirectly owns 25% or more of the equity interests of the legal entity customer. In this scenario, both co-founders own 50%, so both must be identified. The control prong requires identification of an individual with significant responsibility to control, manage, or direct the legal entity customer (e.g., a CEO, CFO, Managing Member, or any other individual who performs similar functions). The correct action therefore includes identifying both 50% owners and an individual with managerial control.

Focusing only on the authorized signatory, while necessary, is insufficient for beneficial ownership, as it misses the other 50% owner and does not explicitly address the control prong for *an* individual. Requiring an operating agreement and financial statements is part of broader Know Your Customer (KYC) and due diligence for suitability and risk assessment, but it is not the specific CIP requirement for identifying individual beneficial owners. Simply verifying the entity's identity and the signatory's authority is too general and does not meet the specific FinCEN requirements for identifying the underlying individuals who own or control the legal entity customer.