Quick Answer
The Customer Identification Program (CIP) collects exactly four items (name, date of birth, address, identification number) before or at account opening. Know Your Customer (KYC) is the ongoing duty to keep essential facts current. Suspicious activity escalates to compliance; Regulation S-P guards private data; power of attorney and discretionary rules define who may act.
The whole unit on one sheet: verify who the customer is, keep knowing them, report what looks wrong, protect their data, and document every grant of authority.
CIP and KYC: Verify, Then Keep Knowing
- Customer Identification Program (CIP): required by the USA PATRIOT Act; forms a reasonable belief the firm knows the customer's true identity. Four items collected before or at account opening.
- The four CIP items: name, date of birth, address, identification number. Occupation, income, and net worth are not CIP (those are suitability facts).
- Verification: documentary (government photo ID) OR non-documentary (database, credit bureau, public records). Either is enough.
- Office of Foreign Assets Control (OFAC) screening: check the government terrorist list within a reasonable period. On an apparent match, the rep does not proceed: stop, escalate to compliance, do not tip off.
- Know Your Customer (KYC): ongoing duty to know essential facts on opening and maintenance of every account, plus the authority of each person acting for the customer. Standard is reasonable diligence, not perfection.
The One-Liners That Win Points
- CIP = identity, four items, one time. KYC = essential facts, ongoing. Completing one does not satisfy the other.
- A P.O. box alone is not a valid CIP address for individuals; a current street address works even if temporary.
- Corporate insiders = officers, directors, and 10%+ shareholders; watch for insider trading and the short-swing profit rule (buy/sell within 6 months disgorged).
- Employee accounts elsewhere need prior written consent from the employing member; a pre-existing account gets consent within 30 calendar days of becoming associated.
- Suspicious Activity Report (SAR) = suspicion; Currency Transaction Report (CTR) = cash. SAR needs suspicion at $5,000; CTR fires on cash over $10,000 with no suspicion needed.
- The registered representative escalates; the firm files. A rep reports suspicious activity to the AML compliance officer, who decides on the SAR filing with FinCEN.
- Regulation S-P opt-out reaches only nonaffiliated third parties. A customer cannot opt out of affiliate sharing under S-P.
- Limited power of attorney (POA) = trade only; full POA = trade plus withdraw. All POAs (even durable) die with the principal.
Numbers to Lock In
| Item | Value |
|---|---|
| CIP required identifying items | 4 (name, date of birth, address, ID number) |
| CIP record retention | 5 years after account closure |
| SAR threshold (broker-dealers) | $5,000 plus suspicion |
| SAR filing deadline | 30 calendar days (up to 60 if no suspect) |
| CTR threshold | over $10,000 cash in one business day |
| CTR filing deadline | 15 days of the transaction |
| Corporate insider shareholder threshold | 10% or more of a class |
| Short-swing profit look-back | 6 months |
| Employee outside-account consent (pre-existing) | within 30 calendar days of association |
| Reg S-P breach notification | as soon as practicable, no later than 30 days |
| Time-and-price discretion | expires end of the business day granted |
| Discretionary account documents / order approvals | 6 years / 3 years |
Top Gotchas
- CIP is exactly four items, not three or five; occupation, income, and net worth belong to suitability, not identity.
- On an OFAC hit the rep only stops, escalates, and stays silent; resolving the match is compliance's job, never the rep's.
- Structuring (breaking cash up to stay under $10,000) is a federal crime by itself, separate from whatever it hides.
- No tipping is absolute: you cannot tell the customer, their attorney, or anyone outside the firm that a SAR was filed.
- Trading authority alone is not discretion. It is discretionary only if the third party picks the security, action, and quantity without per-trade approval.
- Full discretion needs three things: prior written customer authorization, written firm acceptance by a designated principal, and each order marked discretionary at entry.
- Time-and-price discretion needs no written authorization and expires at the end of the business day, not end of week or until canceled.
- Trustees are bound by the trust agreement: no self-dealing, no borrowing, and a fair price does not cure a self-dealing conflict.
One-Breath Recap
Collect the four Customer Identification Program items before or at account opening, keep essential facts current under Know Your Customer, and escalate anything suspicious to compliance rather than filing or tipping off. Report cash over ten thousand dollars on a Currency Transaction Report and suspicion at five thousand on a Suspicious Activity Report, guard private data under Regulation S-P, and document every power of attorney, trust, and discretionary grant. Nail the four items, the two thresholds, and the discretionary trio, and this unit answers itself.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Customer Screening and Documentation unit for the complete lesson.