Under what circumstance can a financial institution deny a customer's account application?

A financial institution can deny a customer's account application if the identity or source of funds cannot be verified because this is a crucial aspect of compliance with anti-money laundering laws and Know Your Customer (KYC) regulations. These regulations require financial institutions to perform due diligence to ensure they know who their customers are and that the funds being deposited are from legitimate sources.

When an institution cannot verify the identity of a potential customer or trace the origin of their funds, this raises significant red flags related to potential money laundering or fraudulent activities. Therefore, failing to verify this information can result in the institution refusing to open the account to protect itself from legal and financial risks associated with non-compliance.

The other options don't have the same weight in terms of compliance-related obligations. For instance, while a low credit score or previous banking issues may raise concerns, they do not automatically justify a denial under regulations aimed at preventing illicit financial activities. Similarly, the issue of having too many customers does not pertain to regulatory compliance and would be more of a service management issue rather than a valid reason for denial under BSA requirements.