There are many reasons why businesses in the banking and financial streams want to incorporate a regulatory identification process. The primary reason is identifying the customers who engage in countless monetary transactions.
As a regulatory requirement of the Patriot Act, banking and financial institutions within the U.S. have to follow a Know Your Customer procedure which allows the bank to establish a basic relationship with the customer, determine and assess risk, and maintain compliance.
Today, a customer identification process has a broader meaning. CIPs are used to assess the risk of onboarding a customer, financial, reputational, and legal repercussions.
Further, identifying customers at the introductory stages of onboarding helps businesses to validate and avoid high-risk profiles.
The following discussion will focus at length on the importance of the customer identification process or procedure and its significance in today’s atmosphere of risk of identity fraud and other uncertainties.
A customer identification process is a set of protocols banks and financial institutions follow to identify incoming profiles, assess risks, and prevent and detect money laundering and terror-financing activities.
A CIP is a mandatory protocol, which must be followed when an individual wants to open an account with a bank or financial institution.
According to Alliance for Economic Inclusion (AEI), a CIP must include four forms of identity information including the name, date of birth, address, and national identification number of the customer.
This information must be recorded and verified against government records to ensure validity and accuracy. The program between the bank and the customer must be drawn based on mutual consensus.
A customer identification process includes 4 critical steps of profile onboarding and vetting. Each financial institution can integrate these 4 steps as appropriate to their organization’s size, feasibility, and reason.
These 4 stages include:
Financial institutions have to record the identities of their incoming customers. Information, such as the name, date of birth, address, and national identification number must be obtained initially to establish a common understanding between the bank and the customer to commence with a mutually discussed program. This program could be a savings account, current account, or any other scheme as provided and acknowledged by the bank and the customer.
Once the information has been collected, the bank, within its reason must inquire the customer for proof of identification to support the identity claims.
For residents of the U.S., a social security card or taxpayer-identification card would suffice to support the proof of identity.
Non-residents or foreign nationals within their legal status must provide the necessary proof of identification, such as their national identity numbers, passport, and any other form of identity as recognized and accepted by their native governments and also by the U.S. government’s security requirements.
The information and proof collected must be recorded and maintained as long as the customer continues to be a part of the bank’s programs.
In some cases, the information must be stored even after the customer’s exit for documentation purposes.
The collected information is then verified against the authorized records of the government. The details and proof provided by the customer must match the records of the government(s) to ensure that the information is valid.
This vetting process is primarily used to check the credibility of the individual, identity matching, and most importantly to check if an individual has a history of engaging in money laundering terror-funding regimes.
The authorized government lists and databases must be used to verify the information and assess the risks of a profile.
After the customer has been onboarded and the account has been opened, the account must be monitored for any possible suspicious activity.
Although this is a practice for the long-term, initial account monitoring helps financial institutions detect suspicious activity and submit Suspicious Activity Reports (SAR) to law enforcement.
The primary objective of integrating an effective Customer Identification Process is to identify the customers and verifying their financial history in terms of money laundering and terror-funding activities, and creating a safe environment for financial institutions and customers.
While several practices help you streamline your customer identification process, automating your KYC process would help you improve the quality of customers onboarded and approval rates.
With 17+ authorized checks, your customer identification process is effectively optimized, helping you identify and approve profiles per the records of the government.
You can also add customized checks to your dashboard to further accelerate your profile vetting operations.
Our identity verification gateway allows you to identify your CIP objectives, plan your organizational manpower, scale your productivity, and achieve your goals efficiently.