What is a Customer Identification Program (CIP)? (2024)

As part of Know Your Customer (KYC) guidelines, firms must conduct Customer Identification Programs (CIP) to verify that customers are who they say they are and are being truthful about the business they are engaged in.

The CIP sets the minimum requirements for onboarding new clients, but depending on the size and location of an organization, each program will vary. For instance, the steps employed by a large bank with a range of products and services look different from a local community bank. No matter what differences exist, though, an effective CIP enables firms to form a reasonable belief about the true identity of each customer.

General requirements of a CIP

Section 326 of the USA PATRIOT Act recommends three steps in developing a Customer Identification Program:

• Identification and verification of persons opening an account
• Recordkeeping
• Comparison with government lists

  At a minimum, firms are required to obtain identifying information about a client such as a name, date of birth, address and identification number. Acceptable forms of identification can include a U.S. social security number or other government-issued documents; and for a non-U.S. citizen, individual tax ID or employer ID numbers.

  Firms should also consider the risks of their customer base and product offerings by looking at the types of accounts offered, methods of opening an account, types of available information, and various firm characteristics (size, location, customer base).

  How firms verify documentation

  There are two ways firms can gather information: verification through documents and verification through non-documentation.

  The former is primary-source information, such as what is used at a Department of Motor Vehicles to obtain a driver’s license. This includes an unexpired government-issued ID with proof of nationality or residence. Entitles, on the other hand, need registered articles of incorporation, business licenses or partnership agreements.

  Non-documentary verification methods are less straightforward. Firms must contact a customer after the account is opened, compare the information provided against government databases, or check references with other institutions. This step helps to remove any doubt a firm may have about a specific person or business.

  However, when there is a lack of information, banks may need to go further to evaluate a customer’s situation. In the meantime, banks set terms for how customers can use their accounts while the bank attempts to verify their identity. If the issues persist, the bank may then close an account and file a Suspicious Activity Report (SAR).

  How Dow Jones can help

  Our risk data can be integrated into a client’s existing risk assessment systems, such as a Customer Relationship Management (CRM) system, in order to manage their risk-based approach in a centralized system.