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Some automated systems connect directly with the Office of Foreign Asset Control and its lists.
The Customer Identification Program rule, or CIP, implements section 326 of the USA Patriot Act, which requires credit unions, banks and savings associations to have reasonable belief that they know the true identity of each customer. These laws were established with a goal of preventing money-laundering and terrorist activities. On May 11, the Financial Crimes Enforcement Network reminded financial institutions that the final rule, “Customer Due Diligence Requirements for Financial Institutions” officially became effective. Credit unions more than ever are being watched and held to these higher.
The CIP regulations are designed to achieve a few main objectives.
- Identify and verify the customer’s identity
- Understand a particular customer and create a risk rating specifically for that profile
- Help banks make more informed decisions based on risk factors
- Decrease money laundering as a whole
Despite the good intentions behind these regulations, credit unions have said that these and other requirements have put lots of extra pressure on financial institutions from a time and money standpoint. To comply, credit unions need to be able to prove they did their due diligence and understood a member before engaging in activity with him or her.
This due diligence process, known in the industry as “know your customer,” requires institutions to acquire a lot of data. The process of manually entering data can be extremely difficult and time consuming. However, the fines for not complying with the laws are quite extensive and therefore not something to joke about. According to a report by Deloitte in 2014, regulatory fines associated with anti-money laundering activities totaled over $2.35 billion.
One way many credit unions are trying to ease the burden of these and other regulatory requirements is to automate as much of the process as possible. As it relates to customer identification programs, a time-saver is to use a loan origination program that is integrated through an API with the Office of Foreign Assets Control, a tool that looks for potential matches on the Specially Designated Nationals List and on its Consolidated Sanctions List.
OFAC is able to produce a list of possible name matches, with a score that indicates the confidence of the matches. This is one aspect of getting the information needed to comply with CIP regulations. Some software solutions can integrate with systems like OFAC and process data points for every loan origination without ever needing to leave the original interface. Integrations like this are a huge step forward in complying with CIP regulations while also reducing the time spent entering data to conduct due diligence before engaging in the financial activity.
Without high quality and correct data inputs, the CIP regulations will be difficult to uphold. Not only might institutions be fined, but illegal activity may go unnoticed. These laws aren’t put into place to make processes more difficult, but they have created extra work. Finding a reliable way to automate high quality data into your credit union’s platform could be a small change that pays dividends, both from a time and money standpoint.
Thomas Curley is a marketing associate at Sageworks, Raleigh, N.C., which offers banks and credit unions lending, credit risk and portfolio risk solutions to efficiently grow and improve the borrower experience.
