Customer Identification Program

Financial institutions operating in the US are directed to verify the identity of their customers before providing services. As a mandatory requirement under the US Patriot Act, businesses must develop reasonable procedures for risk assessment and identity verification of every prospective user.  

What is a Customer Identification Program?

A Customer Identification Program or CIP is a due diligence practice that corporate and financial organizations must perform in order to meet Know Your Customer (KYC) obligations. For US-based companies and those having business associations with them, CIP is essential during the customer onboarding process. It takes into account official government-verified documents to identify and authenticate customers before associating ties with them. 

What is the Purpose of CIP?

In 2003, CIP through the Patriot Act amendment became a mandatory component of the Bank Secrecy Act (BSA). The purpose behind this was to ensure that customers are honest about the identity information they submit during new account openings. A customer identification program plays a crucial role in detecting and preventing money laundering conducted through financial transactions, especially through banks, crypto exchanges, insurance firms, and similar institutions. 

What are CIP Requirements?

For Customers

There is a minimum set of requirements that customers must provide while opening a new account with a business. 

• Full name
• Date and place of birth
• Address information
• An identification number, usually the SSN

For Businesses

When financial organizations need to identify and verify their partner entity or a business associate, they require the following information for a CIP:

• Company name
• Business address
• Corporation date and issuance documents
• Ultimate Beneficial Ownership (UBO) information
• The company registration number (CRN)

Components of the CIP

In order to implement a customer identification program within an organization, it is important to have profound knowledge of the BSA requirements. Knowing these due diligence rules and regulations can enable compliance teams to develop better strategies for risk assessment and ongoing monitoring of customer behaviour. Below are listed some aspects that are of prime importance in a CIP.
Risk Assessment
Analysing risk against each customer is a mandatory component of the CIP during the account opening procedure. The CIP should include a risk-based assessment that takes into account identity components and defines how to verify each component. Some of these risk assessment parameters comprise:

• The amount and size of transactions
• Origin of the financial transactions 
• Credibility of the identity information submitted by the user
• Account activity (logins, assigning beneficiaries, payment transfers, etc.) 

Banks are required to maintain proper documentation of CIP policy and procedures that can be used as a legal instrument to enforce regulations. 

Extended Due Diligence

To better understand the customer, financial institutions can extend the customer identification program based on the level of risk posed by a certain customer. Addressing accountability concerns is important, which is why background checks and ongoing KYC is essential. Here are some sources/methods that are used for comprehensive verification of the customer:

• Real-time asset tracking 
• Watchlist screening 
• Adverse media checks
• Name screening against sanctions and PEP lists
• Information regarding Ultimate Beneficial Ownership (UBO)

Auditing the CIP Policy

Banks and financial institutions should have a designated officer who regularly audits the KYC/AML compliance program, including the CIP policy. Carrying out in-house and independent audits allows organizations to ensure the effective implementation and functioning of CIP procedures. Officials reviewing the policy need to address any concerns regarding information collection, the verification process, screening procedures, compliance requirements, and internal controls. 

Suggested Reads: 

Customer Due Diligence: From KYC to KYB

KYC Verification Process – 3 Steps to Know Your Customer Compliance