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Others expressed concern about the verification and recordkeeping requirements. Description of Final Rule Relevant Definitions The final rule provides several definitions, which, among other things, assist members in determining who are the relevant persons whose identities need to be verified. Importantly, the final rule contains two exclusions from the definition of "account." The definition excludes: (a) an account that the broker/dealer acquires through any acquisition, merger, purchase of assets, or assumption of liabilities; The Adopting Release explains that in acquisitions, mergers, purchases of assets, or assumptions of liabilities, customers do not initiate these transfers and, therefore, the accounts do not fall within the scope of Section 326 of the PATRIOT Act. Customer Identification Program Minimum Requirements The final rule requires that broker/dealers establish, document, and maintain a written CIP.
As initially proposed, the definition of "account" contained several examples of types of accounts that would be covered including cash accounts, margin accounts, prime brokerage accounts, and accounts established to engage in securities repurchase transactions. "Broker/dealer" is defined as a person registered or required to be registered as a broker or dealer with the Commission under the Securities Exchange Act of 1934 (Exchange Act) except persons who are required to be registered solely because they effect transactions in security futures products.3. The final rule defines "customer" as: (a) a person that opens a new account; and (b) an individual who opens a new account for an individual who lacks legal capacity or for an entity that is not a legal person. This program must be appropriate for the firm's size and business, be part of the firm's anti-money laundering compliance program, and, at a minimum, must contain procedures for the following: identity verification, recordkeeping, comparison with government lists, and providing customer notice.
The final rule requires each broker/dealer to establish a written Customer Identification Program (CIP) to verify the identity of each customer who opens an account.These procedures should be based on the firm's assessment of the relevant risk factors discussed above.Each broker/dealer must conduct its own risk-based analysis of the types of documents that it believes will enable it to verify the true identities of customers.However, the final rule recognizes that situations may arise where a broker/dealer will have to take extra steps to verify the identity of those with trading authority. "Federal functional regulator" is defined as: the SEC; the Commodity Futures Trading Commission; the Board of Governors of the Federal Reserve System; the Office of the Comptroller of the Currency; the Board of Directors of the Federal Deposit Insurance Corporation; the Office of Thrift Supervision; or the National Credit Union Administration. Identity Verification Procedures A CIP must include risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable.In these instances, a CIP is required to address situations where the broker/dealer will take additional steps to verify the identity of a customer that is not an individual by seeking information about individuals with authority or control over the account in order to verify the customer's identity. The procedures must enable the broker/dealer to form a reasonable belief that it knows the true identity of each customer.