CIP for Publicly Traded Company and its Signers

Issue/Question

The Bank is looking to open a new checking account for a large business that is publicly traded. It has been told that the CIP requirements do not apply to the signers on the account, since the customer is a publicly traded company. Can the Bank open an account without the CIP information on the account signers?

Response Summary

The CIP rules would not require the Bank to verify the identity of the authorized signers of a customer or the identity of a customer that is a publicly traded company. If the CIP policy of the Bank requires it to verify the identities of the customer and signers in this case, however, then the Bank must follow its policy.

Response Detail

There are two questions here:

• Is a publicly traded company a “customer” for CIP verification purposes?
• Must the identity of an authorized signer be verified under the CIP rules?

We’ll take the second question first. Under the CIP rules, the identity of a customer must be verified. A “customer” is generally “a person that opens a new account.” That means that the customer will be the named owner of the account rather than an individual who is authorized to sign on the account but has no ownership interest in it. In this case, even if the publicly traded company is considered a customer, an authorized signer would not be, and the Bank would not be required to verify the identity of the authorized signer [31 CFR §103.121(a)(3)(i); FFIEC, FAQs: Final CIP Rule].

As to the first question, some entities are specifically excluded from being considered “customers” for CIP purposes. These include “any entity (other than a bank) whose common stock or analogous equity interests are listed on the New York Stock Exchange or the American Stock Exchange or have been designated as a NASDAQ National Market Security listed on the NASDAQ Stock Market (with some exceptions)” [31 CFR §§103.121(a)(3)(B); 22(d)(2)(iv)]. If the “publicly traded company” fits this definition, then it is not a customer and its identity does not have to be verified.

There is a caveat, however, and it concerns the CIP policy of the Bank. The CIP rules establish minimum standards, but each bank is required to develop procedures to account for all relevant risks in verifying the identity of all customers, to the extent reasonable and practical. The minimum requirements should be supplemented by risk-based verification procedures, where appropriate, to ensure that the Bank has a reasonable belief that it knows each customer’s identity [31 CFR §103.121(b); FFIEC, FAQs: Final CIP Rule].

This means that, while the CIP rules would not require the Bank to verify the identity of the publicly traded company or its authorized signers, the Bank’s own CIP policy may require it to do that very thing. The Board of Directors may later determine that this is not ideal, but while the policy remains in effect, the Bank must follow it. If the policy requires verification in a case such as this, the Bank must do so.

This entry was posted on Friday, December 5th, 2014 at 7:48 pm.