Why must Madelyn follow her firm's KYC policy?

The primary purpose of following a firm's Know Your Customer (KYC) policy is to minimize the firm's susceptibility to illegal activities. KYC procedures are designed to verify the identity of clients, understand the nature of their activities, and assess potential risks for money laundering or other illicit activities. By diligently adhering to KYC policies, financial institutions not only protect themselves from being inadvertently involved in criminal activities but also contribute to the overall integrity of the financial system.

In the context of the choices, while assuring suitable recommendations as required by regulatory bodies like FINRA is important, this does not directly capture the critical role of KYC in preventing illegal activities. KYC is fundamentally about risk management related to client behavior and transactions. Its purpose extends beyond just advising reputable customers or achieving compliance with broader regulatory guidelines; it is a proactive measure to safeguard the institution from exploitation by individuals engaging in financial crimes. Therefore, following KYC protocols supports the firm in fulfilling its responsibility to prevent money laundering and maintain a secure financial environment.