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Ensure Your Customer Identification Program Runs Smoothly

Customer Identification Program graphic

Ensure Your CIP Runs Smoothly, Quickly and Accurately

How do you know someone is who they say they are? After all, identity theft is widespread, affecting over 13 million US consumers and accounting for 15 billion dollars stolen in 2015. If you’re a US financial institution, it’s more than a financial risk; it’s the Law.

The CIP mandates that any individual conducting financial transactions needs to have their identity verified. As a provision of the sweeping Patriot Act, it’s designed to limit money laundering, terrorism funding, corruption and other illegal activities. The desired outcome is that financial institutions accurately identify their customers:

US Patriot Act Section 326

(2) MINIMUM REQUIREMENTS.—The regulations shall, at a minimum, require financial institutions to implement, and customers (after being given adequate notice) to comply with, reasonable procedures for—

‘‘(A) verifying the identity of any person seeking to open an account to the extent reasonable and practicable;

‘‘(B) maintaining records of the information used to verify a person’s identity, including name, address, and other identifying information; and

‘‘(C) consulting lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency to determine whether a person seeking to open an account appears on any such list.

The question remains, how do you make the identification up to legal standards and limit your risk?

Have a Written Procedure

As stated in the CIP, your institution needs an accurate, documented process approved by the board of directors. This process should be a part of the compliance program and should include procedures for opening accounts, account verification, screening accounts, customer notification, and recordkeeping.

A critical element to a successful CIP is a risk assessment, both on the institutional level and on procedures for each account. While the CIP provides guidance, it’s up to the individual institution to determine the exact level of risk and policy for that risk level. If you’re a credit union that only has individual customers from a small, local area, your CIP can be far less stringent than an international bank with clients from a terrorist hotbed. Ensure your policy is “reasonable and practicable,” documented, and keep an eye on it.

Note the CIP is only one element of a broad range of AML (anti-money laundering) and KYC (know your customer) policies from various regulatory agencies.

SEE ALSO: Compliance is Good Business

Opening an Account

There is fundamental information that needs collecting when opening a financial account. Not surprisingly, an individual account requires full name, address, date of birth and identity number (tax number). There are corresponding requirements for Non-U.S. citizens and people without permanent addresses.

For businesses and other organizations, documents that prove their existence need to be collected. These materials can include certified articles of incorporation, a government-issued business license, a partnership agreement, or trust instrument.

In July 2016, FinCEN (The U.S. Treasury Department’s Financial Crimes Enforcement Network), enacted new rules to close loopholes regarding beneficial ownership of businesses. Just having a record of the firm still leaves opportunities for corruption based on lax due diligence on who is the owner.

Now, the financial institution must identify the beneficial (or true) owner(s):

FIN-2016-G003 Issued: July 19, 2016, Subject: FAQ Regarding Customer Due Diligence Requirements for Financial Institutions

Question 11: Beneficial ownership information that must be collected for legal entity customers

Q: What types of information are covered institutions required to collect on the beneficial owners of legal entity customers?

A: As with CIP for individual customers, covered financial institutions must collect from the legal entity customer the name, date of birth, address, and social security number or other government identification number (passport number or other similar information in the case of foreign persons) for individuals who own 25% or more of the equity interest of the legal entity (if any), and an individual with significant responsibility to control/manage the legal entity at the time a new account is opened.

On August 25, 2016, FinCEN proposed a further rule to extend customer identification program requirements and beneficial ownership requirements to those banks not already subject to these requirements.

Identity Verification

Try to open a bank account without ID; it’s not going to happen. However, what happens if the applicant is not physically present to supply ID? Nowadays, there’s a huge demand for account verification that adheres to CIP and an institution’s risk policy in Fintech and alternative financial opportunities. These online processes can still be compliant and within risk tolerance by using an identity verification provider.

SEE ALSO: GlobalGateway: Trulioo’s Identity Verification Service – Product Brochure

Electronic identity verification solutions provide a substantially better account verification process than the cumbersome, slow  processes of handling the actual physical ID. They reduce error rates, by eliminating multiple manual entries. They cut costs by dramatically cutting down on paperwork and handling. And, from a customer point of view, they create a better onboarding process, as it can be a much quicker process.

No wonder financial institutions of all types are quickly adopting identity services for all their account verification needs.

Screening Accounts

Screen new accounts against databases and lists of known money launderers, terrorist organizations and sponsors and other sanctions lists.

Customer Notification

Notify customers about their ID information verification.

Record Keeping

Retain all documentation relating to customer ID while they are a client and up to five years after.

CIP as a Competitive Advantage

The CIP makes sense, both from a way to prevent financial crimes and as a way to reduce risk. With a deliberate, intelligent process in place, along with advanced technology, it need not be a burden, but can be a competitive advantage:

  • Improving organizational performance,
  • Improving customer satisfaction,
  • Enabling new Fintech opportunities,
  • Reducing risk.

Considering the new Customer Due Diligence Requirements, it’s especially important to have an efficient CIP now:

“The CDD Requirements to collect substantially more information to open financial accounts need not be a burden,” said Jon Jones, President at Trulioo. “By using intelligent, sophisticated identity verification methods, the process can be virtually automated while retaining full compliance and risk tolerance.”

Learn more on how to streamline your CIP and avoid getting bogged down in paperwork, lower your costs and risk.

DOWNLOAD: [White Paper] Meet Global KYC Compliance Requirements Without Burdening Customers

The information in this blog is intended for public discussion and educational purposes only. It does not constitute legal advice.

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