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Section 326 of the Patriot Act required the U.S. Secretary of the Treasury to develop regulations setting forth minimum standards regarding customer identification for opening new accounts at certain financial institutions. The federal banking regulatory agencies together developed regulations to implement Section 326. That regulation is known as “the CIP rule” because it requires banks, savings associations, credit unions and certain non-federally regulated banks to have written Customer Identification Programs (CIP).
The minimum standards established for CIPs are intended to enable financial institutions to form a reasonable belief about the true identity of their customers. One of the components of a CIP is therefore to verify the identity of each customer. Another component is to scan each customer against government list(s) of known or suspected terrorists or terrorist organizations.
Patriot Act Compliance and Your Customers
When a new customer opens an account to receive services from a financial institution, CIP requirements apply and can sometimes impact the customer experience. Such services may include deposit accounts, transaction accounts and other types of accounts. Customers can include individuals, corporations, partnerships, trusts, etc. The way a financial institution approaches identity verification and watch list scanning efforts carries the potential to shape its overall customer experience. Identity verification tools and watch list checking software can play important roles in a financial institution's Patriot Act compliance program. Streamlining certain Patriot Act compliance efforts can lead to a more effective compliance program because software tools typically bring higher levels of accuracy and process efficiency. Perhaps equally important, many software tools can do this while minimizing the friction experienced by customers. As financial institutions compete for revenue, the overall customer experience can contribute to brand value and the financial institution's bottom line.
Patriot Act Software Can Streamline Patriot Act Compliance
Meeting specific Patriot Act compliance requirements can be costly to an organization, but failing to do so can be vastly more expensive. Fines and penalties related to inadequate Patriot Act compliance programs have been significant, but the damage to a financial institution's reputation can be even more costly. If negative publicity erodes customer trust, financial institution customers may choose to reduce the number of products and services they use, or perhaps completely sever their relationships with the institution. This can negatively impact bottom line figures and lower an institution's brand value. In addition, regulatory actions may divert resources – including senior level managers – from focusing on revenue and profitability while they develop and implement necessary corrective actions. Patriot Act software can help financial institutions to meet certain compliance requirements and protect their organization's bottom line.
Tip: Customer Identification Methods
As you select documents, consider associated risks. If this document is not well known to your personnel, will they be able to spot a fraud? If this is a foreign document, will you accept it only when accompanied by another form of identification? Will you require certified copies of any documents? Remember it is important to provide reasonable belief that you know the true identity of each customer.
Confronting identity fraud begins with vigilant identity verification. Being aware of potential identity fraud risk will keep you alert to potential tactics and deceptive individuals.
Through a house vote of 423-3 and supported by a landslide vote in the Senate of 99-0, a significant federal law was conceived in July 30, 2002 which brought significant changes on the laws concerning America's security market through the Sarbanes-Oxley Act of 2002. Known as the Public Company Accounting Reform and Investor Protection Act of 2002 the Act was authored by Senator Paul Sarbanes and Representative Michael G. Oxley in response to the series of scandals concerning corporate financial agencies.
The Sarbanes-Oxley Act is a legislative law designed and implemented to help enhance the policies and standards of U.S. public corporate and financial establishment firms. Restoring the public confidence on the U.S. security market is believed to be the aim of the Sarbanes-Oxley Act which has 11 sections concerning the added Corporate Board responsibilities, the criminal penalties involved and the Security and Exchange Commission's responsibility of implementing requirements in compliance to the new legislation.
The legislative body finds it appropriate to implement the Sarbanes-Oxley Act acknowledging its significant role in strengthening the audit requirements that are designed to protect the investors through accurate corporate disclosures, establishment of an accounting oversight board, strengthen corporate responsibility, enhanced financial disclosure and auditor independence. In short the Sarbanes-Oxley Act is designed to extract accurate and reliable disclosures on about anything.
The Sarbanes-Oxley provides additional civil and criminal penalties for incurring securities violations and it promotes a longer jail sentence to executives who deliberately misstate their financial statements. The Act also provides larger fines for those who violate the legislative law while defining certain limitations on prohibiting auditing firms from providing extra services to corporate and financial agencies.
Publicly traded companies are also mandated by the Sarbanes-Oxley Act to submit an independent annual report on their audits concerning the internal controls involved related to financial reporting. The internal auditing procedures are supported with an external audit report to prevent misstatement of financial reports by the executives in authority thereby discouraging fraud.
Through the transparency system encouraged by the Sarbanes-Oxley Act all information regarding the engaged financial transactions of any US public financial company will be displayed in full disclosure that does not provide any chance for fraud to occur. The disclosed information will also include all flows of transactions such as how the transaction is initiated, supported, authorized, reported and processed. This information should be readily available at anytime when needed.
The main goal of this disclosure is to provide a clearer view when identifying any misstatements where fraud or error can possibly occur and who are the persons in authority responsible for the flaw. This strengthens the control and reporting processes involved directed to safeguard the assets of the stock holders through proper implementation of reliable guidelines and policies concerning the US financial market.
Public trust is won by the Sarbanes-Oxley Act as it provides more stringent policies and rulings concerning how the financial institutions of the US should be operated that provide better confidence of getting a more transparent system regarding the disclosure of reports and financial statements of each government corporate firm.