Customer Identification Program (CIP): Definition & Guidelines

Every bank needs a customer identification program (CIP) to comply with United States requirements created in the aftermath of the terrorist attacks of 9/11.

CIP in banking reduces money laundering risks. Organisations that don’t comply could face stiff fines, loss of consumer confidence, or both. 

What is a customer identification program?

Should you be able to walk into a bank, state your name, and open an account? Federal regulators don't think so. A CIP program ensures that your financial partners know who you are, what risks you pose, and what work you expect to do. Banks are expected to get all the information they need within a reasonable time, and they should use both documents and interviews to get it. 

Banks and financial institutions make their own CIP verification programs based on their size, typical customers, and location. At one bank, you could be asked for six or eight pieces of identification. At another, you might face less stringent requirements. Both organisations are complying with the law. 

We've been talking about CIP banks, but it's important to understand that credit unions, trusts, and savings associations are also required to comply. If it involves moving money, the organisation must be prepared. 

Ignoring the rules isn't wise. Fines for violations could cost companies thousands, and in some cases, prosecutors could open cases in civil court. 

How does a CIP program work?

Legislative rules dictate minimums. Banks must verify identity and address, for example. But organisations must also create risk-based verification rules, so they can spot problems that might be specific to their markets. 

Before any customer can open an account, the bank must gather these four types of information:  

1. Name: The customer must offer a first and last name. 
2. Birthdate: An individual must provide the date of birth, including the year.
3. Address: Individuals must provide their home addresses, and businesses must offer a principal address for the home office. 
4. Identification number: A number associated with tax records applies here. 

With this data in hand, the organisation must:

• Verify. Accepting information at face value isn't enough. The organisation should look at supporting documentation to ensure they're getting the right answers. 
• Record. The organisation should keep records of the information they've accepted. 
• Check. The bank should also look over terrorism lists from governments to ensure they're not working with criminals. 
• Watch. In some cases, the bank may do even more investigation. If someone attempts a transaction that seems dangerous, for example, the bank may study records again. 

CIP verification is very similar to Know Your Customer (KYC) regulations. Some people use the terms interchangeably. 

Understand CIP in banking: How did we get here?

Arguably, it was much easier to open an account and move money years ago. It can seem unusual or irritating to offer up so much data to work with your own money in a bank that you've chosen. But these rules are meant to curb very real problems. 

In the aftermath of