Customer Identification Programs in Action: A Comprehensive Guide for Financial Institutions


As part of Know Your Customer (KYC) guidelines, firms must conduct Customer Identification Programs (CIPs) to verify that customers are who they say they are and that they are being truthful about the nature of the businesses in which they are involved.

What Is a CIP?

A CIP is simply a process or system that collects, records and verifies the information that a prospective customer provides the bank during the onboarding process of opening an account. The CIP sets the minimum identification requirements for onboarding a new client. However, programs can vary based on the size and location of the firm. For instance, the CIP undertaken by a large bank with a range of products and services will differ from a local community bank. 

“No matter what differences exist, though, an effective CIP enables firms to form a reasonable belief about the true identity of each customer,” explains Dow Jones. 

General Requirements of a CIP

Section 326 of the USA PATRIOT Act recommends three steps in developing a CIP:

  • Identity verification of any individual opening an account.
  • Record maintenance of information used to verify the person’s identity, such as their name, address and other information to prove identity.
  • Comparison of the individual against those listed as a known or suspected terrorist or linked to an extremist organization per government agencies.

However, they may also consider the following program elements when instituting a CIP:

  • Internal controls, policies and procedures
  • A designated compliance officer
  • Continuous training program for the employees
  • Independent auditing for testing the program

As a minimum, firms are required to obtain identifying information about a client, such as their name, date of birth, address and identification number. Acceptable forms of identification can include a U.S. Social Security number or the numbers assigned by different state or federal agencies, such as a state Department of Motor Vehicles (driver’s license) or the U.S. Department of State (passport).

Firms should also consider the risks associated with their customer base and product offerings by looking at the types of accounts offered, methods of opening an account, types of available information and various firm characteristics (size, location and customer base, for example).

CIP Document Verification in Action

There are two ways firms can gather information: verification through documents and verification through non-documentation. The former is primary-source information, such as what is used at a Department of Motor Vehicles to obtain a driver’s license or the U.S. Department of State to obtain a passport. 

Non-documentary verification methods are less straightforward and require more investigation. Firms must contact a customer, compare the information provided against government databases, or check references with other institutions. This step helps remove any doubt a firm may have about a specific person or business.

Who Must Comply With CIP Requirements?

The following types of companies must incorporate CIP:

Understanding CIP vs. KYC

While banks conduct both KYC and CIP in compliance with anti-money laundering rules, there is a difference between the two.

CIP is a basic program that involves simply collecting and verifying the identification information provided by a customer to the bank. By contrast, KYC goes deeper; it involves making a decision during the onboarding process about whether to allow a prospective customer to open an account based on information related to the customer’s past and current financial and business activities. CIP can be considered part of a bank’s overall KYC efforts.

Establishing a CIP Instantly

A bank or financial institution wishing to establish a CIP will need to adopt or expand systems and IT resources for the secure intake of personal data from prospective customers during the onboarding process. Internal controls and processes will also need to be established by the compliance officer and risk management teams.

Firms can benefit from a managed digital customer onboarding system, such as Instnt Accept™, that provides a suite of verification tools that accept ideal customers while rejecting high-risk ones. As the first set of interactions beyond marketing, onboarding should provide prospective customers with an intuitive, frictionless experience that assures them they’ve made the right choice for their banking needs. More importantly, the bank should be able to quickly and securely capture the information it needs as part of its CIP and larger KYC initiatives.

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About the Author

Instnt's fraud loss insurance platform offers comprehensive protection for businesses for the entire customer lifecycle, from account initiation, and onboarding to subsequent logins, transaction processing, and the broadened accessibility of additional products and services.