ICI Supports Final Customer Identification Program Requirements

Washington, DC, May 2, 2003 - The Institute supports final rules for customer identification programs (CIPs) recently released by the Treasury Department and other federal regulators, including a new provision allowing mutual funds to rely on intermediaries to perform CIP functions in certain circumstances.

Specifically, the final rule states that a mutual fund’s CIP may include procedures that specify when the fund will rely on the performance by another financial institution of any procedures of the fund’s CIP and thereby satisfy the mutual fund’s obligations under the rule. In order for a mutual fund to rely on the other financial institution, three requirements must be met:

• reliance must be reasonable under the circumstances;
• the other financial institution must be subject to a rule implementing the anti-money laundering compliance program requirements of section 5318(h) of the Bank Secrecy Act and be regulated by a federal functional regulator; and
• the other financial institution must enter into a contract with the mutual fund requiring it to certify annually to the mutual fund that it has implemented an anti-money laundering program and will perform (or its agent will perform) the specified requirements of the mutual fund’s CIP.

In an earlier comment letter, the Institute expressed strong support for effective rules to combat potential money laundering activity, including the proposed rules requiring mutual funds to adopt and implement customer identification programs, but urged Treasury and the SEC to consider appropriate implementation and transition periods for the rule, in order to accommodate the significant systems and other changes that will have to be made to comply with its requirements.

The final rules will require all mutual funds to implement a written CIP, appropriate for its size and type of business, that sets forth risk-based procedures for verifying the identity of each new customer to the extent reasonable and practicable. The CIP must be part of the mutual fund’s anti-money laundering program, and must, at a minimum, contain the following:

• procedures for opening an account that specify the identifying information that will be obtained with respect to each customer prior to opening an account;
• procedures for verifying the identity of the customer within a reasonable time after the account is opened;
• procedures for making and maintaining certain records relating to the identification and verification of customers;
• procedures for determining whether the customer appears on certain lists of known or suspected terrorists or terrorist organizations; and
• procedures for providing mutual fund customers with adequate notice that the mutual fund is requesting information to verify their identities.