Customer Screening and Identification
Before a firm can evaluate suitability or accept an order, it must first answer a fundamental question: who is this customer? The Customer Identification Program (CIP) provides the legal framework for answering that question.
The Legal Foundation
- The USA PATRIOT Act Section 326 and 31 CFR 1023.220 require every broker-dealer to establish, document, and maintain a written CIP as part of its anti-money laundering (AML) compliance program
- The goal is to form a reasonable belief that the firm knows the true identity of each customer
- CIP must include risk-based procedures for verifying identity, not a one-size-fits-all checklist
The Four Required Identifying Items
Every CIP must collect these four pieces of information before or at account opening:
| Item | Details |
|---|---|
| Name | Full legal name |
| Date of birth | For individual accounts |
| Address | Residential or business street address (P.O. box alone is not sufficient for individuals) |
| Identification number | SSN or taxpayer ID for U.S. persons; passport number and country of issuance or alien ID number for non-U.S. persons |
Exam Tip: Gotchas
- CIP requires exactly four pieces of identifying information. Not three, not five. The exam may list a set of items and ask which one is NOT required.
- Occupation, income, and net worth are NOT part of CIP. They are collected for suitability purposes, not identity verification.
- A P.O. box is NOT sufficient as an address for individual CIP purposes.
- CIP information must be collected before or at account opening, not after.
- Non-U.S. persons can provide a passport number (with country of issuance) instead of an SSN.
Verification Methods
Once the four items are collected, the firm must verify the customer's identity through one of two methods:
- Documentary methods: Government-issued photo ID (driver's license, passport)
- Non-documentary methods: Database checks, credit bureau reports, public records
Firms are not required to use both methods; either is acceptable as long as the firm forms a reasonable belief about the customer's identity.
Government Lists and OFAC Screening
- CIP must include procedures to check whether a customer appears on any government list of known or suspected terrorists, maintained by the Office of Foreign Assets Control (OFAC)
- This check must be completed within a reasonable period after account opening
- OFAC screening is separate from the identity verification process but is part of the overall CIP requirement
Record Retention
| Record Type | Retention Period |
|---|---|
| CIP records | 5 years after the account is closed |
| Verification records | 5 years after the record is made |
Exam Tip: Gotchas
- CIP records must be kept for 5 years after account closure. Verification records are also kept for 5 years, but measured from when the record is made.
- Record retention is "after the account is closed" for CIP identifying information, not "after the record is made." The exam tests this distinction.