On May 13, 2024, the Securities Exchange Commission (SEC) and Financial Crimes Enforcement Network (FinCEN) issued a joint proposed rule imposing Customer Identification Program (CIP) requirements for certain types of investment advisers. In particular, the rule will require those investment advisers registered with the SEC and exempt reporting advisers (ERAs) to implement a CIP program.
A CIP rule has been in place for other regulated entities, such as banks, credit unions, broker/dealers, and others since the early 2000s. The rule supports overall anti-money laundering (AML) and countering the financing of terrorism (CFT) goals by making it more difficult to use false identities to establish accounts and mandating certain records be maintained.
Advisers are expected to have six months following the issuance of the final rule to establish a compliance program and meet the requirements. This is part of a coordinated effort to implement additional AML regulations upon investment advisers. A proposed rule mandating advisers establish formal AML compliance programs was issued earlier this year.
Key Requirements of the CIP Rule
The CIP rule will include key requirements such as:
- A written CIP policy that is appropriate for the size and operations of the adviser and addresses all the requirements under the rule.
- The collection of certain key pieces of information for each customer establishing an account, such as the name, date of birth, physical address, and identification number.
- Risk-based procedures to verify the identity of each customer, which will enable the adviser to form a reasonable belief that it knows the true identity of the customer. The program must establish when the adviser would rely upon documentary verification and non-documentary verification.
- Addressing what the adviser will do in those circumstances where it is unable to form a reasonable belief that it knows the true identity of the customer.
- Maintaining records for each customer relationship to demonstrate compliance with the rule.
- Procedures to determine whether a customer appears on any government-issued list of terrorists or known terrorist organizations.
- Providing notification to the customer that the adviser shall be requesting information to verify their identity.
- Identifying situations where the adviser will rely on the performance of another regulated institution to perform aspects of its CIP obligations, and ensuring it is only done under the permitted circumstances.
Wolf has decades of experience assisting clients across a variety of industries with their CIP compliance obligations. If you have any questions relating to the proposed rule or would like to discuss CIP with us in further detail, please reach out to our Regulatory Compliance team.
