Section 326 Takes Over: "The Devil Is In The Details"
The long awaited, much heralded Section 326 is now the focus of many compliance officers and training officers in the financial industry. The changes from the proposed rules are not so different from what industry watchers thought they would be. But enough of details change to make compliance and training time consuming.
Customer Identification Program (CIP)
The proposed rule required that the Customer Identification Program had to be written and that it be approved by the board of directors or a committee of the board. The final rule recognizes that the institution's Bank Secrecy Act (BSA) compliance program must already be approved by the board. Adding the CIP to the bank's BSA compliance program, as directed, is a material change that will still require the board's approval. The board of directors is responsible for approving a CIP described in detail sufficient for the board to determine that:
the bank's CIP contains the minimum requirements of this final rule; and
The bank's identity verification procedures are designed to enable the bank to form a reasonable belief that it knows the true identity of the customer.
The minimum requirements and verification procedures are listed by element (identity verification, recordkeeping, comparison with government lists, and customer notice.)
Verify Only Identity
The final rule included a clarification that an institution must verify the customer's identity using the identifying information obtained. The proposed rule would have required verification of all identifying information.
Physical Address
The proposed rule required obtaining a physical and a mailing address from a customer opening an account. Under the final rule, the institution is only required to obtain a physical address. Most financial institutions at the present time ask only for a mailing address.
"Shared" Customers
If you "share" a customer with another financial institution, you may also share customer identification and verification obligations to reduce the cost of maintaining duplicate records.
Tax Number Applied For
Under the proposal, a corporation that has applied for, but not received, a taxpayer identification number, can still open an account. The final rule says that an individual may do the same.
What is a "Person?"
The regulation makes clear that a "person" can be an individual OR a corporation, partnership, or trust.
What is a "Customer?"
The proposed rule maintained a "customer" was a person that "seeks to open" an account. The final rule now defines "customer" as "a person that opens a new account" - making clear that a person who does not receive banking services, such as a person whose deposit or loan application is denied, is not a customer.
The final rule goes on to make clear that a person that has an existing account with the institution is excluded from the identification procedure, provided that you have a reasonable belief that you know the true identity of the person. Which means if you already have an account with a person and they wish to open another account, you don't have to go through the verification procedure with them as you would a person who has never had an account with you.
The proposed rule also wanted identification for all signers on all accounts, including commercial accounts. The final rule recognizes this could be "enormously burdensome" as some signers are simply employees for firms with corporate accounts. The requirement has been replaced by stating that a bank's CIP must address situations when the bank will take additional steps to verify the identity of a customer that is not an individual by seeking information about individuals with authority or control over the accounts. (A risk-based decision.)
A person can also be an individual who opens a new account for:
another individual who lacks legal capacity, e.g. a minor.
an entity that is not a legal person, e.g. a civic club.
For instance the custodian would be the "customer" on an UTMA account. On an estate account, the personal representative of the estate would be the customer. On an organization account, the customer would be the person authorized to open the account.
Recordkeeping - Copies
Recordkeeping was changed by eliminating the requirement that a bank keep copies of any document relied upon to verify identity. Now, records need only include "a description" of the document relied on. That description can include identification document numbers, place and date of issuance, expiration dates, methods used to verify, and resolution of any substantive discrepancy.
The information on the customer (name, date of birth, address, etc.) obtained from the customer must be kept for five years after the account is closed (or in the case of credit cards, after the account is closed or dormant).
The description of the documents relied on must be kept for five years after the account is opened.
It goes without saying this information must be retrievable. This regulation spells out the minimum standards for customer identification programs. If your state law does not prohibit it, and if you do it in a way that does not violate Regulation B/ECOA (Equal Credit Opportunity Act), you may decide, as a matter of policy, that you DO want to retain such documentation such as photocopies of drivers licenses, etc.
Notify Customers
Financial institutions must notify customers of identity verification procedures. The proposed rule said you could do so orally, in writing, or via a lobby notice. The final rule says the notice must be "adequate." It explains that a notice is adequate if the institution generally describes the identification requirements and provides the notice in a manner "reasonably designed to ensure that a customer is able to view the notice, or is otherwise given notice, before opening an account." This is in addition to the disclosure pertaining to fees and conditions that must be given to a person before opening an account and creates another step in the new account opening procedure. The lobby notice (they include sample wording in the regulation) will suffice for those who enter the office, but other forms will be necessary on the website or electronic account opening.
Government Lists
While there is currently no "government list" for purposes of Section 326, before one is issued your Customer Identification Program (CIP) must include procedures for determining whether the customer's name appears on the list. It also must include a requirement for you to make such a determination within a reasonable period of time after the account is opened, or earlier, if required by another Federal law or regulation or Federal directive issued in connection with the applicable list. In addition, your CIP needs to specify that you will also follow all Federal directives issued in connection with such lists.
Good Business Practice
Treasury and the regulatory agencies wrote in the preamble that they "…believe that national banks and savings associations already have procedures in place that fulfill most of the requirements of the final rule because the procedures are a matter of good business practice. In addition, national banks and savings associations already are required to have BSA compliance programs that address many of the requirements detailed in the final rule."
The "devil is in the details," as one banker described it. The final requirements will have to be adapted to each individual financial institution.
Effective Date
Recognizing that financial institutions will need time to develop a CIP, obtain board approval, and implement the CIP, which will include such measures as training of staff, reprinting forms, and developing new software, Treasury decreed that although the final rule will be effective on June 8, banks are provided with a transition period. Each financial institution must fully implement its Customer Identification Program by October 1, 2003.
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
