Question: How does the Patriot Act, specifically, the Customer
Identification Policy requirements, make allowances for Online Activities? The example of a new deposit account being opened online, for instance. Will this act stimulate a host of on-line verification services for banks or create a high cost of offline manual verification processes for online banks?
Answer by Primary Payment Systems The Act does not specifically make "allowances" for online account openings. Rather, it specifies that the CIP should be "risk-based", i.e., reflect an increased level of scrutiny for channels with increased risk. Online account openings definitely fall under the auspices of a high risk channel, and the identity verifications performed should accordingly be more
rigorous.
Primary Payment Systems, Inc. (PPS) offers solutions to detect high-risk identities, deposits, and payments.
IDENTITY CHEK is a robust 'CIP' solution integrating identity verification, validation, OFAC screening, and fraud detection -- including participation in the Anti-Fraud Exchange.
DEPOSIT CHEK, PRIME CHEK, and DECISION CHEK represent the largest collaborative effort among financial institutions to prevent deposit and payment fraud losses. On a daily basis, financial institutions contribute and share status information on over 195 million deposit accounts, 16 million stop payment records, as well as 'return' decisions.
For additional information on PPS, visit the company web site at www.primarypayments.com or call us toll free at 877-275-7774.
Answer by Gary Hess, Bankers Sytems, Inc.
The Customer Identification Program (CIP) regulations issued under section 326 of the USA Patriot Act have a significant impact on the online activities of a financial institution.
The regulation contains a "risk-based" standard that the institution must implement in order to determine the true identity of each customer. There must be in place risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable, that must enable the institution to form a reasonable belief that it knows the true identity of each customer. It is evident there may be more risk associated with an account being opened online than with one where the customer applies in person with an employee at a financial institution.
Before the regulation can apply, the person opening an account must be a customer. By definition, if not by logic, a customer does NOT include a person that has an existing account with the bank, provided the bank has a reasonable belief that it knows the true identity of the person. If an existing customer opens a new account online, how will the bank satisfy itself that it knows the true identity of the person opening the account, since the bank may not have any interaction with the customer?
If the bank decides the regulation applies to the transaction, adequate notice must be given prior to collecting the identifying information. How will this notice be provided online to ensure that a customer is able to view the notice before opening the account? For example, will the notice be posted on the web site?
If the bank determines this person is a customer to whom the regulation applies, and the adequate notice is adequately provided, how will the identity of the person be verified? Documents? Non-documentary? Both? Ouija board? Assuming the latter is ruled out, is it practical to have documents submitted via fax? Scanned copies attached to email? Documents mailed in and matched to online information at a later time? Most definitely NOT. These manual practices and the related costs make the utilization of non-documentary, electronic database search engine verification products the most obvious choice for providing a reasonable belief that the bank knows the true identity of each customer.
The regulation anticipated the issues online transactions would present, but does not exclude them from the application of the regulation. Manual processes in such situations will be costly, and non-documentary, electronic, database verification systems are a logical alternative to manual processes.
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