In light of the new CIP requirememts do we need to have a Know Your Customer policy also. The two, CIP and KYC are identical in our policy.

CIP replaced any know your customer requirements. If you had them in place, then your job was easy, because all you needed to do is fine tune your KYC procedures to be in compliance with CIP.

CIP and know-your-customer, which we now call customer due diligence in examinerdom, are two very different things. CIP covers the identification and verification of a customer's identity either through documents, e.g., driver's license, or nondocumentary means, depending on how risky the customer is.

In order to determine the risk a customer may pose to you, you have to ask some other questions, which gets you to KYC, er, I mean customer due diligence. For example, at account opening, you should find out what the person's job is, the purpose of the account and what level of transactions you can expect going through the account. Getting income information would be good, too, but customers seem loath to give it, and bankers seem equally loath to ask for it. So, at least get the person's job which will probably allow you to estimate how much they would make in your market. If they are unemployed, you should ask about their sources of funds.

The purpose of getting this information is twofold: 1) it allows you to detect unusual transactions that may indicate unauthorized access/fraudulent transactions; 2) it allows you to determine if transactions are suspicious for reporting on SARs. This is an important internal control to have in your BSA program.

So, to answer your question directly, there should be some guidance for bank employees on what the bank expects of them when opening accounts, both for CIP purposes and for customer due diligence. Whether that is in one or two policies doesn't matter. AR.

anonregulator, I just finished the policies and procedures for my bank and I did as you describe. It made sense to me!

Once and for all - CIP does NOT equal KYC.

CIP was only the very beginning of KYC! The very early beginning!

AnonRegulator - nice to see you back. You've been gone for awhile?

I like to think of it this way--getting to "know your customer" is like putting a puzzle together. CIP is only one piece of the puzzle. Without it, you'll never have the entire picture just as you will never have the entire picture if you go no further than meeting the minimum CIP ID requirements.

CIP is a critical component of your KYC (or customer due diligence) program.

I hereby make a motion that we change the term
"Know Your Customer"

to instead read:

"UNDERSTAND Your Customer"

I think the word "understand" conveys the heart of what this is all getting at. It's one thing to know something, but it's quite another to understand it.

You may KNOW your customer is depositing $9,000 everyday. However, if you don't understand WHY the customer is depositing that money, you have a very difficult AML situation.

You are right, Bonnie. Long before KYC became a buzzword, at a former bank we had a section of our credit policy called "understanding your borrower" and that was exactly the point. How can you lend or sell products well (let alone survive BSA) if you do not have a good understanding of your borrower, what they do, why, how, etc.

"Know Your Customer" was a longstanding phrase borrowed from the brokerage industry. It translated to things like don't sell speculative stocks to widows & orphans and, when converted to banking, made absolutely no sense. It was catchy and nice to dance to, but I vote to kick it.

Who remembers the ABA MLES where they handed out KYC buttons for everyone to wear? Big fun.

And KYC became "suitability" for the brokerage world, I guess! I worked at a bank where compliance tried to apply suitability to lending. That would have been interesting. We finally convinced them that underwriting, etc. accomplishes that.

UYC! UYC! UYC!

I think I'll have a T-shirt made!

The part I hate about the "Know" Your Customer phrase is that eveyone thinks it refers to Customer Identification. You can see the confusion almost everyday on these threads.

We need to start phasing out the crappy Acronyms and Catch-phrases like KYC and Enhanced Due Diligence (gad - reminds me of something from Animal House - Super Secret Probation!), and replace it with what we really mean.

We need to UNDERSTAND our customers for various reasons:

• In order to sell them products that make sense for them and for us ,
  
• In order to be able to provide them with better service
  
• In order to discover if they are trying to defraud the bank ,
  
• In order to discover if someone is trying to defraud the customer (re: Elder Financial Abuse),
  
• In order to see if they are criminals that are laundering money or committing crimes through our institutions.

UNDERSTANDING is the key!

Polite applause in the background as I step off my soapbox. Thank you!

No handclap emoticon available. It could be a flowchart that ends with RYC, Report Your Customer!

Yipes Bonnie...........scarey but interesting

I guess it is maybe a matter of using the wrong phrase, in my mind "know your customer" and customer due diligence are two different things. Wasn't the law proposed before CIP, called "Know your Customer". Which was put down pretty easily by consumer protection groups and such. Then came 9/11 and CIP. Hence my ill posted response the Know your customer and CIP were the same and Know your customer was dead, never even was given life, actually. Maybe I am showing that I have only been in compliance for a few years but to me know your customer and customer due diligence are two very different things.

I am sorry if my post was not clear and caused confusion for anyone.

To give you an example of where the regulators originally wanted to go with Know Your Customer (1996-ish), the following is from a large bank credit policy in direct response to a Fed criticism for not having a policy/procedure specifically named "Know Your Customer". They were basing this requirement on the need to identify activity that was not normal for BSA purpose.

"Know Your Customer

Bank has always recognized that knowing and understanding our customers and potential customers is critical to our ability to compete in our markets. This understanding is also necessary for Bank and its employees to avoid criminal liability as a result of customers using the resources of the institution for illicit purposes such as money laundering. It is the responsibility of all Bank employees to make all reasonable efforts to determine the true identity of our customers and to develop and maintain a clear understanding of our customers' practices.

The procedures and lending guidelines referenced here have been provided to support the establishment and ongoing management of customer relationships.
Refer to:
>Knowledge of and Contact with Borrower
>Acceptable Credits
>Brokered Funds Transactions
>Monitoring Customers' Accounts
>Prohibited Credits
>Signatures of Customers
>Suspicious Activity Reporting"

The first paragraph was drafted to satisfy the Fed and linked to the existing policies and procedures listed under Refer To.

Names were changed to protect the innocent!