CIP requirements: How to improve fintech compliance

CIP requirements protect companies and consumers but create challenges for financial organizations. Here's how tech is streamlining the process.

May 17, 2023

Danielle Antosz

Danielle is a fintech industry writer who covers topics related to payments, identity verification, lending, and more. She's been writing about tech for over a decade and is passionate about the impact of tech on everyday life.

Fintech companies are swimming in regulatory requirements—and acronyms. From the Bank Secrecy Act (BSA) to anti-money laundering (AML) regulations, staying compliant with all the financial requirements can be a challenge. 

Today, many fintech companies and financial institutions leverage advanced digital tools to complete these processes faster without increasing risk, including for CIP (Customer Identification Program) requirements.

This article outlines what you need to know about CIP, including what it is, the different CIP requirements, and how technology streamlines the process and improves the onboarding process.

What is CIP (Customer Identification Program) in banking? 

A Customer Identification Program (CIP) is a mandatory procedure for entities that are identified as financial institutions under the Bank Secrecy Act (BSA).  The program must outline the steps taken to verify the identity of customers who open an account with the financial institution. CIP is a component of the BSA (Bank Secrecy Act) as amended by the USA Patriot Act Section 326, which was implemented on June 9, 2003. 

An organization's CIP must include risk-based procedures for verifying a customer's identity to a reasonable extent. The procedures must be based on the financial institution’s assessment of relevant risks, including:

  • Types of accounts the organization holds

  • How accounts are opened 

  • Types of identifying information 

  • The organization's size, location, and type of customers 

For fintech companies, CIP processes are important to reduce risk and safeguard users' information in a digital world.

How are CIP banking requirements different from KYC? 

CIP and KYC are often used interchangeably, however, there are noticeable differences between the two concepts. Before discussing how CIP has shifted in recent years, it's helpful to understand the differences between the two. 

CIP refers to a documented process financial institutions must have to outline how they identify their customers before they open an account. It is a required piece of an AML program that ensures companies take reasonable steps to determine who customers are. 

KYC is a broader concept that includes guidelines and regulations financial and investment institutions must follow to identify customers, assess risk, and monitor transactions for suspicious activities. KYC does not refer to specific regulations; rather it is a catch-all phrase for regulations surrounding identity verification procedures related to AML and BSA compliance. 

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What are customer identification program requirements? 

Banks and some other financial companies must have a written CIP program incorporated into their BSA/AML requirements. The program must include practical, reasonable, and risk-based procedures for verifying a customer's identity. 

The rules should apply to any customer who opens an account for themselves or for another person or organization. The rules do not apply to an individual who does not formally open an account — for example, someone who applies for a car loan but is denied.

There are five main components of CIP banking requirements: 

  1. What identity information is collected: At a minimum, it must include name, date of birth, address, and identification number, such as a TIN or SSN. 

  2. How the information is verified: The organization must be able to verify that the documents and information provided are accurate to a reasonable degree. 

  3. Comparison of identity to government lists: How the organization compares customers to a list of known or suspected terrorists or money launders. 

  4. How records are retained and stored: A CIP must also include descriptions of the documents collected, how they are collected, and how they are stored. 

  5. Procedure for disabling an account: Outline when the organization should not open an account and when to file a suspicious activity report (SAR.) 

In the past, building a CIP meant organizations had to outline how to collect and verify documents in person. Today, however, the digital identity verification process makes the process easier. That makes creating a CIP easier, too. 

CIP in fintech: the evolution of the customer identification program

Traditionally, opening a bank or investment account took hours—if not days. Customers would go into their local bank branch, meet with a bank manager, and hand over identity documents like their driver's license, social security card, and mail proving their address. If you didn't have official mail (say, because you just moved) or your license has expired, you couldn't open a bank account. After collecting the documents, the bank manager would make photocopies and verify they were real. All those efforts required a huge time investment. 

These requirements limited some consumers' access to financial accounts and tools. Some customers might have to take an afternoon off work—just to open a bank account or access a line of credit. Similarly, banks could spend a massive amount of time gathering, verifying, and storing documentation. 

Thanks to advances in technology, times are changing. Now, customers can upload a picture of their driver's license, take a selfie, and—presto—identity verified. Digital identity verification allows fintech companies to verify identification documents, phone numbers, names, dates of birth, ID numbers, addresses, and more digitally—often right from a customer's phone or tablet. 

Digital identity verification is making big waves in the financial industry. Plaid Identity Verification uses multiple verification methods to verify identification documents, including authoritative data sources and selfie checks to prevent third-party fraud. This limits risks for synthetic identity fraud and presentation attacks

The software increases security and makes verification easier. That makes it easier for companies to create a CIP and increases conversions by improving the onboarding process for customers.

Easier CIP banking compliance

CIP requirements help reduce risks to both companies and consumers. Requiring banks and financial organizations to document how they gather, store, and analyze identification data limits bad actors' ability to access funds, but there are other benefits as well 

Digital identity verification tools make it easier for fintech companies to comply with regulations—and improve the onboarding process for customers. That results in better conversions for companies and increased access for consumers. 

→ Learn more about how Plaid Identity Verification helps you onboard new customers and meet regulatory requirements.

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