Broker Dealers are faced with a number of demanding rules and regulations in the financial industry today. One of those rules, which falls under the USA Patriot Act, requires the broker dealer to report suspicious customer behaviors in order to prevent terrorism-related money laundering. This is referred to as the Customer Identification Program (CIP). Following the CIP requirement to obtain, verify and record the identity of a person or entity is an integral part of knowing your client. These CIP procedures will also need to be written and addressed before your broker dealer’s annual anti-money laundering audit to ensure the firm is not doing business with a restricted person and/or entity.
Listed below are four of the key pieces of information needed from the client although this is not the complete list of what may be required.
– Client’s name
– Date of birth
– Address
– Identification number (TIN, Social security number, passport number)
The CIP rule requires your broker dealer verify the identity of all new customers. Once the firm has obtained the required information and documentation of the customer, the broker dealer will need to follow the required written verification procedures that have been put in place to be sure that the information given to the broker dealer is correct. The verification measures can be done by the firm itself, or the broker dealer can outsource the verification process to an authorized third party organization.
Upon verification of the customer, the broker dealer must next follow the policy and procedures of making sure the persons or entity is not listed as a suspected terrorist or restricted organization by screening against government lists. This rule applies not only to new customers but in a continuous manner.
What happens if the person or entity fails to provide all of the necessary and required information to the broker dealer? Should the customer withhold information and not comply with all the documentation requested for the broker dealer to verify their identity, this would be considered a heightened risk. In this case your broker dealer would need to limit the scope of its services or deny the client any ability to open the account as written within the firm’s procedures.
Lastly, please note that these records must be maintained for as long as the broker dealer holds the account and continue to maintain these records for five years upon closure of the account.
If your broker dealer needs help with written procedures and/or any updates with your CIP verification and risk assessment, contact our office for additional support and information.