Customer Identification Program

A firm opens a brokerage account in the name of a trust. For customer identification program purposes, who or what is treated as the 'customer' whose identity must be verified?

1. A.The trust's beneficiaries, since they are the ultimate economic owners of the assets held in the account.Wrong. The CIP customer is generally the trust itself (and its trustee), not the beneficiaries.
2. B.The attorney who drafted the trust document, since that person has specialized knowledge of the trust's legal structure.Wrong. The drafting attorney is not the CIP customer; the trust itself (and its trustee) is.
3. C.The trust itself (and, depending on the trust's structure, the trustee acting on its behalf), which is treated differently from verifying an individual customer and requires its own approach to documentary or non-documentary verification appropriate to a trust.Correct. The CIP customer for a trust account is generally the trust itself, with the trustee acting on its behalf.
4. D.No CIP obligation attaches to a trust account at all, since trusts are considered exempt from the customer identification program entirely.Wrong. Trust accounts are not exempt from CIP; they simply require an approach suited to verifying a trust rather than an individual.

Why: A trust presents a different kind of customer than an individual, and the customer identification program treats it accordingly: the 'customer' for CIP purposes is generally the trust itself, with the trustee acting on its behalf depending on how the trust is structured, requiring its own documentary or non-documentary verification approach suited to a trust rather than simply verifying whichever individual happens to be involved with it, such as a beneficiary or the drafting attorney.

Kirkbride Securities is opening a mutual fund account titled Estate of Marguerite Tallow, with Hollis Tallow serving as executor. For Customer Identification Program purposes, the customer whose identity the firm must verify is:

1. A.Each beneficiary of the estate, in proportion to their expected inheritanceBeneficiaries have an interest in what the estate distributes, not an account relationship. The CIP does not reach through to them.
2. B.The estate itself, as the legal entity opening the account, with the executor's authority to act confirmed separatelyCorrect. The entity opening the account is the CIP customer; the executor's authority is verified as a distinct matter.
3. C.Hollis Tallow personally, because he is the individual signing the account documentsThe firm will certainly confirm who he is and that he holds letters, but he is signing for the estate rather than opening an account for himself.
4. D.Marguerite Tallow, using the identification she supplied during her lifetimeThe decedent is not the customer of the new account. The estate is a separate legal person created at her death.

Why: The CIP rule applies to the person opening the account, and where that person is a legal entity such as an estate, the entity is the customer. The firm verifies the estate itself, using documents such as the death certificate and the letters testamentary or letters of administration, and separately confirms that the individual signing has authority to act for it.

Under a Customer Identification Program, what standard must a firm meet in verifying a new customer's identity, and by what means?

1. A.A reasonable belief that it knows the customer's true identity, reached documentarily, non-documentarily, or both.Correct. The standard is a reasonable belief, and the rule offers alternative routes to reaching it.
2. B.Certainty as to identity, which requires inspecting an unexpired government photo identification in person.Wrong. Certainty is unattainable, and an in-person inspection requirement would bar remote account opening entirely.
3. C.A reasonable belief, but only where the customer's identity is confirmed by a second financial institution.Wrong. A reference from another institution is one permitted non-documentary method rather than a requirement.
4. D.Whatever the firm's written procedures specify, since the rule leaves the standard to each firm's judgment.Wrong. The reasonable belief standard is set by the rule; the firm chooses methods, not the standard.

Why: The firm must form a reasonable belief that it knows the true identity of the customer, and it may get there through documentary methods, non-documentary methods, or a combination of the two. Documentary methods rely on an unexpired government-issued identification bearing a photograph; non-documentary methods include comparing the information given against consumer reporting agency or public database records, checking references with other financial institutions, or obtaining a financial statement. The standard is deliberately a reasonable belief rather than certainty, because absolute proof of identity is unattainable and demanding it would make account opening impossible. The programme must be risk-based, so a customer or product presenting higher risk warrants more verification than a lower-risk one.

Under the Customer Identification Program (CIP) rules, which four pieces of information must a firm obtain before opening an account for an individual?

1. A.Name, date of birth, address, and taxpayer identification numberCorrect. These are the four CIP minimum data elements.
2. B.Name, email address, phone number, and mother's maiden nameWrong. None of these substitutes for the required DOB, address, and ID number.
3. C.Name, investment objectives, risk tolerance, and time horizonWrong. Those are suitability elements under FINRA 2111, not identity verification.
4. D.Name, occupation, income, and net worthWrong. Occupation and financials are profile/suitability data, not CIP requirements.

Why: The USA PATRIOT Act CIP rule requires name, date of birth, address, and an identification number such as a Social Security number before opening an individual account. Citation: 31 CFR 1023.220. Takeaway: name, DOB, address, ID number.