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#359574 - 05/16/05 01:44 PM
CIP and "Grandfathered" Account Owners
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Power Poster
Joined: Jan 2004
Posts: 2,795
Guess
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I am of the opinion that David Dickinson's answer on grandfathered account owners (in this weeks Weekly Update on Compliance) does not take into account the propensity of examiners to err on the extremely conservative side of pretty much every issue (look at "zero tolerence and BSA).
I decided to CIP existing customers who seek to open new acounts after 10/1/2003 because all the guru guidance at that point clearly indicated the erring on the conservative side of this issue would be the safest course of action.
NOW its suddenly O.K. to rewrite our CIP policies after having subjected our existing customers to the conservative approach for over a year and a half?! I wouldn't want to be part of the financial institution that has to explain how their lack of a verification process for existing customers is based on "fuzzy" regulatory language to the effect that they have a "reasonable belief they know the true identity of the customer" in instances where the only customer contact is based on the mailing out of statements.
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#359575 - 05/16/05 01:51 PM
Re: CIP and "Grandfathered" Account Owners
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Diamond Poster
Joined: Jan 2003
Posts: 1,454
metsuretsu
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I have always been of the thought, CIP as much as is necessary under the circumstances for existing account holders. In other words, if you have had a fifty year relationship with someone and they go to open another account, you probably don't need to go to the extreme that you would for a new customer (member), but it doesn't hurt to get the information that you might not have originally obtained. It doesn't generally offend to say, "I'm sorry but I seem to be missing your drivers license information in our information screen, could you please help me with filling in the missing information."
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I have many opinions; some are good, some are bad, and some don't contradict.
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#359576 - 05/16/05 02:13 PM
Re: CIP and "Grandfathered" Account Owners
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10K Club
Joined: Nov 2000
Posts: 18,762
Central City, NE
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Quote:
I am of the opinion that David Dickinson's answer on grandfathered account owners (in this weeks Weekly Update on Compliance) does not take into account the propensity of examiners to err on the extremely conservative side of pretty much every issue (look at "zero tolerence and BSA).
I decided to CIP existing customers who seek to open new acounts after 10/1/2003 because all the guru guidance at that point clearly indicated the erring on the conservative side of this issue would be the safest course of action.
NOW its suddenly O.K. to rewrite our CIP policies after having subjected our existing customers to the conservative approach for over a year and a half?! I wouldn't want to be part of the financial institution that has to explain how their lack of a verification process for existing customers is based on "fuzzy" regulatory language to the effect that they have a "reasonable belief they know the true identity of the customer" in instances where the only customer contact is based on the mailing out of statements.
Just so everyone is clear, here is the Guru Q&A that ncmountainman is referring to.
Since the initial drafts of CIP, the "existing customer" exemption has been part of the regulatory plan. I haven't heard of one bank that has received any criticism for implementing this exemption. I agree that the regulatory wording can be "fuzzy", but the bank's policy shouldn't be. The bank's policy should specifically state what is required to qualify, such as "had an existing account with us for 1 year", or other definitive criteria.
You state that you didn't implement this exemption because all of the guru's advised you not to? I don't believe that this is accurate as I published a set of Q&A's here at BOL that clearly stated that you could use this exemption.
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#359577 - 05/16/05 02:21 PM
Re: CIP and "Grandfathered" Account Owners
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Diamond Poster
Joined: Jan 2003
Posts: 1,454
metsuretsu
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Thanks for the link David!
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I have many opinions; some are good, some are bad, and some don't contradict.
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#359578 - 05/16/05 03:23 PM
Re: CIP and "Grandfathered" Account Owners
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Power Poster
Joined: Jan 2004
Posts: 2,795
Guess
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My apologies...when I used the term "gurus" I meant to put it in quotes to include power posters and others. I went back and confirmed that there was indeed a lot of concern over using the existing customer exemption among the "rank and file" (more so than the official gurus), and now I think rightly so.
Does every bank have every piece of identifying information required on existing customers that would be required for new customers? I think not. Are the driver's license issuance and expiration dates current, or do they still possess a valid license for the same state. Maybe not. Has their physical address changed and not been updated? Have the returned envelopes been sent to the appropriate persons for customer contact to be made? Maybe, maybe not. Can you therefore, on a case-by-case basis, be certain that you can reach the threshold of that elusive "reasonable belief" for each and every CIP customer an examiner might choose to sample? I think not.
Until such time as the examiners all agree categorically what is necessary for a bank to form a "reasonable belief", I personally will continue to err on the side of caution, especially in light of the lessons learned from the MSB situation.
Others must do as they feel lead.
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Sorry, did I just use my outside voice?
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#359579 - 05/16/05 03:30 PM
Re: CIP and "Grandfathered" Account Owners
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10K Club
Joined: Aug 2001
Posts: 21,939
Next to Harvey
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As much as I enjoy arguing with David, I don't understand the gist of what appears to be criticism. His answer is accurate, including the part about the fact that the term "grandfathering" is not applicable - each bank made its own decision. The original Q & A's outlined an acceptable rationale:
3. How can a bank demonstrate that it has “a reasonable belief that it knows the true identity of a person with an existing account” with respect to persons that had accounts with the bank as of October 1, 2003?
Among the ways a bank can demonstrate that it has “a reasonable belief” is by showing that prior to the issuance of the final CIP rule, it had comparable procedures in place to verify the identity of persons that had accounts with the bank as of October 1, 2003, though the bank may not have gathered the very same information about such persons as required by the final CIP rule. Alternative means include showing that the bank has had an active and longstanding relationship with a particular person, evidenced by such things as a history of account statements sent to the person, information sent to the IRS about the person’s accounts without issue, loans made and repaid, or other services performed for the person over a period of time. This alternative, however, may not suffice for persons that the bank has deemed to be high risk. (January 2004)
Clearly, subjecting all existing customers to CIP would have been more conservative. If a bank had previously not verified identity or consistently obtained physical addresses, DOB and identifying numbers then using the exception would have been the lazy way, not the right way. However, for many banks all CIP did was require more documentation, not more information. Banks that had good procedures in place prior to October 1, 2003 had a powerful rationale for using the exception. Others did not.
It is worth noting that, with the passage of time, the argument for exempting "existing" customers from CIP gets stronger.... Even those that opened their account the day before the effective date have now been with you for 17 months.
Last edited by Ken_Pegasus; 05/16/05 03:37 PM.
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In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.
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#359580 - 05/16/05 04:23 PM
Re: CIP and "Grandfathered" Account Owners
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10K Club
Joined: Nov 2000
Posts: 18,762
Central City, NE
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Quote:
Until such time as the examiners all agree categorically what is necessary for a bank to form a "reasonable belief", I personally will continue to err on the side of caution, especially in light of the lessons learned from the MSB situation.
You are free to do this and as Ken said it would be conservative. Many banks began collecting ID info long before CIP was required. Therefore, to apply the "existing customer" exemption on these accounts made sense. Moreover, if I began collecting ID info before _____ (let's say 1/1/03), then I have a lot of non-documentary verification on accounts opened before this time (periodic statements, loans made and repaid and other services) since the account was opened until today when these customers come in to open a new account.
Quote:
Until such time as the examiners all agree categorically what is necessary for a bank to form a "reasonable belief", I personally will continue to err on the side of caution, especially in light of the lessons learned from the MSB situation.
Have you read the Interagency CIP Q&A's? Specifically, look at the section entitled "31 C.F.R. § 103.121(a)(3)(ii)(C) – Person with an existing account" and more specifically, Q&A #3, which states:
Q. How can a bank demonstrate that it has “a reasonable belief that it knows the true identity of a person with an existing account” with respect to persons that had accounts with the bank as of October 1, 2003?
A. Among the ways a bank can demonstrate that it has “a reasonable belief” is by showing that prior to the issuance of the final CIP rule, it had comparable procedures in place to verify the identity of persons that had accounts with the bank as of October 1, 2003, though the bank may not have gathered the very same information about such persons as required by the final CIP rule. Alternative means include showing that the bank has had an active and longstanding relationship with a particular person, evidenced by such things as a history of account statements sent to the person, information sent to the IRS about the person’s accounts without issue, loans made and repaid, or other services performed for the person over a period of time. This alternative, however, may not suffice for persons that the bank has deemed to be high risk. (January 2004)
These Q&A's were issued by all regulators ("all agree categorically") in January 2004.
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#359581 - 05/16/05 05:19 PM
Re: CIP and "Grandfathered" Account Owners
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Power Poster
Joined: Jan 2004
Posts: 2,795
Guess
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Oh yes, I have read quite a bit, including the Interagency CIP Q & A's. I just feel that the trend is towards more conservative application of BSA, CIP and USA Patriot Act provisions, especially in light of national security issues. To ignore the environment in which the law is being applied in favor of purely semantic arguments is somewhat myopic, IMO. The larger the bank, the more fraught with peril is the existing customer argument. I have worked for one of the biggest banks and am now with one of the "minnows", so I know what is reality and what is wishful thinking". I simply believe that wishful thinking will have to eventually give way to reality.
Enough said. I appreciate the replies of everyone on the thread and I hope that it has served its purpose, that is, causing thought and debate on a sensitive issue. Thanks!
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Sorry, did I just use my outside voice?
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