The theme song for the hit TV show CSI asks "Who are you?" over and over. It is a fitting choice of music for a series depicting crime scene investigators who often deal with unidentified homicide victims.
It's the tune bankers may be singing as well, as regulations promulgated under Section 326 of the USA PATRIOT Act will set new standards for financial institutions to follow in verifying the identity of both deposit and loan customers (live ones, of course!). For now, however, the question of what the standards will be remains an unanswered one as the Treasury Department announced October 25 that it will issue the final Section 326 regulations "within the next six months".
Some institutions chose not to wait for final Treasury Department action and instead adopted new Customer Identification Programs ("CIP") based upon the information set forth in the proposed regulation. Those institutions are now bound by their Board's adoption of new internal standards for customer verification. When the final rules are released, they will need to compare the program they adopted with the new regulation to determine if there are inconsistencies that may require further modification or enhancement of their newly-adopted CIP. Indeed, they may discover the program they have adopted is more onerous than the final rule would require.
There are certain facets of the proposed rules that will almost certainly be included in the final version. Based upon our analysis of those aspects of the proposal, we believe you should begin now to determine your approach to the following fourteen issues:
how you're going to document the method you used to verify customer identity, and, if you used the documentary method, to record which documents you relied upon;
what it will take to make copies of IDs you rely upon in such a way that they are clear enough to show the type of document and any identification number it may contain (in the event they retain the proposed requirement for you to retain copies);
the methods you will use to resolve discrepancies in the identifying information supplied by the customer;
what your policy should be for addressing the following four situations:
where an individual is unable to present an unexpired government-issued ID document that has a photo or similar safeguard;
where the financial institution is not familiar with the documents presented;
where the account is not opened in a face-to-face transaction; and
where the type of account increases the risk that the bank will not be able to verify the true identity of the customer through documents.
how you will assess the risk inherent in:
the various types of accounts you offer;
the different methods of opening accounts (e.g., in person, versus through the mail); and
the types of identifying information available.
on existing customers, what your internal standards will be for your employees to assert that they continue to have a reasonable belief that they know the true identity of the customer.
what your risk-based procedures will be for verifying the information that you from the customer in connection with opening an account and what you will deem to be a "reasonable period of time" after the account is opened for completing this task;
what types of I.D. documents you will consider acceptable;
how you will verify a customer's identity when it is not possible, due to the method of opening the account, to obtain the original I.D. documents;
steps you will take to guard against fraudulent or illegal identification documents;
what your procedures will be for responding to a situation where you are unable to form a reasonable belief that you know the true identity of a customer;
circumstances when an account should not be opened;
conditions under which you should close an account opened by a customer whose identity you cannot verify;
how you will compare the name of the prospective customer against any government lists that may be issued of known or suspected terrorists or terrorist organizations.
The original version appeared in the October 2002 edition of the Oklahoma Bankers Association Compliance Informer.
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