A customer identification program (CIP) is a set of procedures and rules companies follow to verify the identity of customers. It ensures that the customer is who they say they are. A customer identification program prevents fraud, money laundering, identity theft, and other financial crimes by verifying the identity of customers. The customer identification program collects the customer’s name, address, date of birth, and customer identification number and verifies identities by cross-referencing against public databases.
KYC vs CIP:
Customer identification programs (CIP) and Know Your Customer compliance (KYC) are sometimes misunderstood. The customer identification program is part of the broader KYC process. Continuous monitoring and customer due diligence also come into play in KYC.
# Continuous Monitoring
To identify suspicious activity and reduce risks, transactions and consumers are continuously monitored. So, if there’s any unusual behaviour found, it will indicate red flags.
# Customer due diligence
It is a method created to evaluate customer risk; a simplified due diligence process may be used for low-risk profiles. For high-risk profiles, enhanced due diligence (EDD) is necessary.
Who Needs a Customer Identification Program?
Financial institutions such as insurance companies, lenders, banks, and cryptocurrency exchanges must implement a customer identification program. Even businesses that are not bound to follow CIP still choose to do so because of the safety of the business and the customer. Social media and online dating services use customer identification programs to create a safe environment by verifying customers’ identities.
Customer Identification Program Requirements:
Following are some customer identification program requirements that need to be fulfilled to meet the criteria:
- Collect required information from the customer, like the customer’s name, date of birth, address, and customer identification number.
- Verification of customer identity information.
- Maintain recordkeeping according to laws.
- Match the customer’s information with the database.
The customer identification procedure revolves around these steps. Financial institutions must comply with customer identification regulations to verify a customer’s identity and know whether the customer is valid.
1. Collection of Customer Information
For customer identification, a financial institution typically requires four key pieces of information. The four key customer identification program elements are:
- Customer’s name
- Date of birth
- Address
- Customer identification number
This is the minimal data a business needs to confirm a customer’s identification. But extra information, like a phone number or email ID, may be required. The phone number or email is used for communication purposes.
2. Identity Verification Process
Document Verification: After collecting all the information, the question is how to verify it. Identity verification is used to verify the information the customer provides. The customer must upload a photo of a document to compare it with the information provided to confirm whether it’s valid. The document for identity verification is usually a license, passport, or ID card. The required identity documents may be a business license or partnership agreement for business verification.
Database verification: This includes verifying the customer’s provided information with the information stored in the database.
Biometric verification: This verification can be done by validating the facial features of a customer with a biometric database to confirm the customer’s identity and protect against spoofing. The facial features are unique and linked to one person, so there’s no chance of identity theft.
3. Recordkeeping
A financial institution can store customers’ information if they have an account with their business for five years after account closure. The information is directly collected from customers or records found in the database.
4. Screening Against Government Lists
This step of the customer identification program allows businesses to screen customers against sanction lists or other government lists of criminals or terrorists. So, businesses can make sure they are not doing business with anyone who is illegal. This shouldn’t be done only during the customer onboarding process but also during continuous monitoring.
5. Customer Notice
This step must give customers a notice explaining why the company is collecting information or where it will be stored and used to enhance customer trust. If they know the purpose of data collection, they will cooperate more in providing information.
Conclusion:
The customer identification program verifies the legitimacy of a customer to ensure that they are not doing business with anyone illegally.
A customer identification program (CIP) is a set of procedures and rules companies follow to verify the identity of customers. It ensures that the customer is who they say they are. A customer identification program prevents fraud, money laundering, identity theft, and other financial crimes by verifying the identity of customers. The customer identification program collects the customer’s name, address, date of birth, and customer identification number and verifies identities by cross-referencing against public databases.
