by Structured Settlement Watchdog
What is Know Your Customer?
Know Your Customer (KYC) is a set of guidelines and regulations in the financial services industry that require professionals to verify the identity, suitability, and risks involved wit h maintaining a business relationship with a customer. KYC processes are employed by companies of all sizes to ensure their proposed customers, agents, consultants, or distributors are anti-bribery compliant and are actually who they claim to be.
KYC origin can be traced back to the 2001 Title III of the Patriot Act in the United States
The act provided various tools to prevent terrorist activities and required financial institutions to implement a mandatory framework for customer identification.
KYC procedures fit within the broader scope of anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. Banks, insurers, export creditors, and other financial institutions are increasingly required to make sure that customers provide detailed due diligence information.
KYC processes are also employed by companies of all sizes for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant and are actually who they claim to be
The Know Your Client Process Recently Came Up in a Texas Dispute about Reassignment of Factored Structured Settlement Receivables
"Each Genex RPA contains anti-assignment language barring Genex Investors from reassigning receivable payments allocated to them through the Genex servicing process absent notice to Genex and Genex’s express consent. This restriction is designed to protect both Genex as well as Genex’s Investors. It protects Genex by preserving Genex’s ability to complete government required “know your client” processes. It also ensures certainty of payee to minimize the risk that the wrong person gets paid by Genex and/or the insurance issuer/owner. This is particularly important given that Genex has ongoing indemnity obligations owed to issuers and owners such as Prudential. Importantly, the restriction also protects Genex Investors so they do not fall prey to unscrupulous opportunists who may solicit them to sell for less than fair market value, a situation that occurs only too frequently in the structured settlement secondary marketplace".
[see In Re: Juan Oltivero Cause No. B9545-1211 In the District Court of Castro County, Texas, 242nd Judicial District Genex Capital Corporation First Amended Cross Claim and Second Supplemental Petition Against Third Party Defendants Stratcap Investments, Inc., David Meyerowitz and Douglas M. Evans and Intervenor New England Annuity Associates, LLC filed October 4, 2023]
The Oltiveros case points raised concerning KYC are similar to those raised in Genex CEO Roger Proctor's January 3, 2022 Declaration in a pending Arizona case
To wit, following is an excerpt of my March 2, 2022 update:
As a critical part of its business, Proctor states that
"Genex must review the background and suitability of all prospective investors to ensure compliance with a plethora of laws and regulations, including anti-money laundering laws, financial-disclosure requirements, and other rules that prevent unlawful financial transactions
Genex also must determine investor suitability in accordance with its “know your client” protocols, consistent with, among other rules, Financial Industry Regulatory Authority Rule 2090 and Rule 2011"
FINRA Rule 2090 mandates that member firms must “use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”
FINRA Rule 2111 requires that a broker have a "reasonable basis" to believe that a recommended transaction or investment strategy is "suitable for the customer" based on facts obtained through "reasonable diligence." This rule is aimed at remedying past abuses and "yield-chasing" behavior in brokers at a client's expense
Then there is FINRA 2210 which covers advertising.
Who is Covered by FINRA Rules?
Because FINRA oversees workers within the financial industry, its rules primarily apply to brokers and financial advisors. Anyone who buys or sells stocks or securities on behalf of clients is required to get certification, register their name and address, and follow other requirements. To follow these requirements, these professionals must go through FINRA, which means putting nearly every stockbroker or financial advisor under FINRA’s authority.
Specifically, FINRA’s regulations govern “broker-dealers.” This is a broad term used to encompass both agents of financial transactions as well as those who trade for themselves or their firm. For instance, if your stockbroker buys stocks for you, they would be acting as a broker, but if they perform transactions for their brokerage firm’s own accounts, they function as a dealer instead. Regardless, FINRA covers both of these types of professionals, creating rules and regulations to govern their actions.
Under the terms of the agreement between Genex and Seeley and Bulbrook, which Genex acknowledges was consummated on an oral agreement and handshake and not a written contract, in every instance where a new investor sought to purchase a Genex Receivable, Seeley and Bulbrook were responsible for completing the “know your client” protocols approved by Genex, facilitating the completion of an investor suitability form, providing a copy of the Bulbrook Buyer’s Guide approved by Genex, and obtaining required signatures on the RPA, all of which documents were either drafted by Genex or approved by Genex. From time to time, Genex sought proof that these requirements were being satisfied and at no time during the relationship didGenex have concerns about same.
While I was unable to locate the name of Genex Capital Corporation, Genex Strategies or Roger Proctor on FINRA Broker Check or the IAPD database, it is good to see that the Genex Capital CEO aspires to FINRA standards. Did/Does Genex consider the products it offers/distributes to be securities? It sure would be great to see them regulated.
Proctor states that "Genex owes obligations to the Annuity Issuers, and to Annuity Owners/Obligors throughout the term of each Receivable transaction as specified in each court order. In light of these obligations, it is a critical to Genex that it understand the transaction history for all Receivables, ensure that its records are complete and accurate, control downstream further assignments, and know at all times the identity of the legitimate end Payee". [ Decl. of Roger Proctor January 3, 2022, at 24] He states that "Uncontrolled, unapproved, or secret transactions bypassing Genex’s oversight puts Genex at risk of possibly directing payment to the wrong person, double payments, fraud and confusion". [Decl of Roger Proctor 1/3/2022 at 25]
IN THE SUPERIOR COURT OF THE STATE OF ARIZONA
IN AND FOR THE COUNTY OF MARICOPA
GENEX CAPITAL CORPORATION, a Delaware corporation; Plaintiff,
SEELEY CAPITAL MANAGEMENT, INC., a Massachusetts corporation; et al.,Defendants.
Case Nos: CV2020-004958 CV2020-013796 (Consolidated)
DECLARATION OF ROGER PROCTOR IN SUPPORT OF GENEX’S RESPONSE TO SEELEY DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
AND RELATED COUNTERCLAIM. RICHARD L. KEEFER and VICKI L. KEEFER, husband and wife; et al., Plaintiffs,
GENEX CAPITAL CORPORATION, a Delaware corporation; et al., Defendants".