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How to minimize Customer Identification Program errors with online accounts

Jan 05, 2021

With 2021 right around the corner, management at many financial institutions is looking into the new year with uncertainty of what the "new normal" will look like for serving customers over the long term, particularly while striving to maintain a safe distance from each other, including customers in the lobby.

Warm smiles and a handshake have been the foundation of building trust but may now be considered a scary act. Financial institutions often rely on face-to-face interaction to build customer relationships, maintain social responsibility in the community and grow. And growth results from new customer accounts.

Over the past year, management has been forced to get creative with ways to open new accounts that maintain social distancing guidelines and minimize risk to both employees and customers.

To comply with the Customer Identification Program (CIP), financial institutions have made a significant shift toward online account opening, taking phone applications with subsequent delivery of disclosures and using electronic means to securely send and receive customer documentation — all without ever seeing the new customer in person, which presents additional Bank Secrecy Act (BSA) risk.

Accounts opened online may present a higher risk of fraud and opportunities for money laundering. The documentation that must be obtained to meet the minimum CIP and beneficial ownership requirements has not changed, in spite of the pandemic.

The financial institution must obtain the individual's or business’s legal name, a physical address, date of birth (for natural persons) and an official identification number. To comply with beneficial ownership rules, identification of all beneficial owners with 25% or more ownership must be identified, certified and subject to the same CIP requirements. 

When the lobby is closed due to COVID-19 or the customer is simply uncomfortable with an in-person visit, the CIP and beneficial ownership documentation may not be received in a neat package. A common error is opening an account prior to receiving all required documents to verify CIP and beneficial ownership. Beneficial ownership must be certified on or before account opening or, at minimum, prior to allowing use of the account.

A financial institution may set up CIF records prior to receiving documentation as a way to scan OFAC or conduct a credit check; however, use of the account may be limited, as specified in the financial institution's CIP and beneficial ownership policy, until all required documentation is received and beneficial ownership is certified and returned by mail or other secure, electronic means from the customer.

COVID-19 has created many types of fraud schemes and financial crimes, including unemployment fraud, medical fraud, money mule and imposter scams. Accounts opened online during this health crisis should have particularly close review performed for red flags. Ask yourself:

  • Is this a startup business in a field that is higher risk for known COVID-19 fraud schemes?
  • Is this nonprofit organization unknown to you in the community?
  • Is this charity event account being opened to take donations from unknown sources and/or related to COVID-19 response efforts or individual medical needs?
  • Is this individual opening a personal account with anticipated transaction activity that is not typically commensurate with the stated occupation?
  • Is the expected income based on new unemployment benefits?

While safe social distancing from potential new customers may be the new norm for a while, it is critical review any third-party verification reports for discrepancies between the CIP and due diligence information provided by the customer versus what is listed on file with the credit/data repository.

Resolve any discrepancies with additional documentation to allow the financial institution to form a reasonable belief of identity. Keep detailed notes on the documentation relied on to resolve discrepancies or that explains initial questions about the new customer and the anticipated use of the account. In doing so, the financial institution will also keep a safe distance from CIP errors. 

How Wipfli can help

Wipfli’s team brings real-world experience to your financial institutions to meets today’s evolving compliance programs. Learn more about our compliance services on our web page or read more of our articles on BSA:

BSA compliance: Whose job is it anyway?

BSA training expectations and best practices

Author(s)

Stephanie Jennings, CRCM, CCBTO
Manager
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