A Customer Identification Program (CIP) is a

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

requirement, where

financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

s need to verify the identity of individuals wishing to conduct

financial transactions A financial transaction is an agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment. Any transaction involves a change in the status of the finances of two or more businesses or individuals. A ...

with them and is a provision of the

USA Patriot Act The USA PATRIOT Act (commonly known as the Patriot Act) was a landmark Act of Congress, Act of the United States Congress, signed into law by President of the United States, President George W. Bush. The formal name of the statute is the Uniti ...

. More commonly known as

know your customer Know Your Customer (KYC) guidelines in financial services require that professionals make an effort to verify the identity, suitability, and risks involved with maintaining a business relationship. The procedures fit within the broader scope of a ...

, the CIP requirement was implemented by regulations in 2003 which require US financial institutions to develop a CIP proportionate to the size and type of its business. The CIP must be incorporated into the bank's

Bank Secrecy Act The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laund ...

Anti-money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...

compliance program, which is subject to approval by the financial institution's board of directors.

History

In 2002, the Department of the Treasury, through the

Financial Crimes Enforcement Network The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terr ...

(FinCEN), together with the Office of the

Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, bank regulation in the United States ...

(OCC), the Board of Governors of the Federal Reserve System (Board), the

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cred ...

(FDIC), the

Office of Thrift Supervision The Office of Thrift Supervision (OTS) was a List of federal agencies in the United States, United States federal agency under the United States Department of the Treasury, Department of the Treasury that chartered, supervised, and regulated all ...

(OTS), and the

National Credit Union Administration The National Credit Union Administration (NCUA) is a government-backed insurer of credit unions in the United States, one of two agencies that provide deposit insurance to depositors in U.S. depository institutions, the other being the Federa ...

(NCUA) (collectively, the Agencies), jointly adopted a final rule to implement section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required To Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 (the Act). The rule had an effective Date of June 9, 2003 and each US

had to comply with this final rule by October 1, 2003. In July 2016, FinCEN enacted new rules regarding beneficial ownership: 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.

Requirements

The Customer Identification Program is intended to enable the bank to form a reasonable belief that it knows the true identity of each customer. The CIP must include new account opening procedures that specify the identifying information that will be obtained from each customer. It must also include reasonable and practical risk-based procedures for verifying the identity of each customer. Financial institutions should conduct a risk assessment of their customer base and product offerings, and in determining the risks, consider: * The types of accounts offered * The methods of opening accounts. * The types of identifying information available * The institution's size, location, and customer base Section 326 requires the Secretary of the Treasury (Secretary) to jointly prescribe with each of the Agencies, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC), a regulation that, at a minimum, requires financial institutions to implement reasonable procedures to verify the identity of any person seeking to open an account, to the extent reasonable and practicable; maintain records of the information used to verify the person’s identity; and determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency. This final regulation applies to banks, savings associations, credit unions, private banks, and trust companies.

References

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External links

CFR 2010 31 CFR 103.121 Federal regulations requiring the CIPFAQ Regarding Customer Due Diligence Requirements for Financial InstitutionsTrulio blog – Steps to run a customer identification program
Financial regulation