As financial institutions seek to leverage their use of real-time transactions, the need for efficient customer on-boarding processes becomes increasingly critical — as does a way of providing fast and efficient identity verification
Among today’s financial services institutions, there is a strong preference for conducting business in real-time or as close to it as possible. This means everything from opening accounts to wiring funds needs to be done faster and more efficiently.
Among traditional financial institutions, the on-boarding process, which includes customer screening, can consume valuable time and can sometimes extend to several days. Enhancing efficiency necessitates accelerating the screening and compliance procedures to ensure protection for both the customer and the institution involved. This need for efficiency aligns closely with the objectives of the customer identification program (CIP), which plays a vital role within financial institutions by helping to prevent financial crimes.
Compliance with CIP regulations performs several essential functions in addition hindering financial crimes such as money laundering, terrorist financing, and identity theft. Compliance with CIP, which verifies customer identities to deter such illicit activities, is legally required, through regulations like the USA PATRIOT Act. Non-compliance with CIP can result in substantial fines and reputational harm.
Need for ID verification is critical
Efficient identity verification is critical for the risk management function of a financial institution’ compliance program, as delays may lead to the inadvertent on-boarding of high-risk clients, who may pose financial and legal risks. Adherence to CIP requirements also supports institutional integrity, fostering trust among regulators, customers, and the public. Additionally, accurate and timely identification underpins ongoing anti-money laundering (AML) and counter-financing of terrorism monitoring, ensuring the continued effectiveness of these efforts.
In essence, prompt compliance is not merely about fulfilling a requirement — it entails actively safeguarding the financial system and the institution from imminent threats while meeting legal obligations in a timely manner.
As financial crimes evolve, regulatory bodies update CIP rules to address new threats and ensure robust defenses. Technological advancements, such as the development of AI, also play a role, as new tools and methods for verifying customer identities become available, enhancing security and efficiency. Additionally, changes in laws and regulations, such as amendments to the PATRIOT Act, necessitate updates to ensure continued compliance. And global standards — like those set by the intergovernmental Financial Action Task Force — may influence CIP rule changes to align with international best practices.
Further, feedback and experience from implementing existing rules can lead to refinement that improves effectiveness and reduces compliance burdens. These changes aim to enhance the ability of financial institutions to prevent financial crimes and maintain compliance while lowering regulatory costs and improving operational efficiency.
Changes to CIP requirements coming in 2025
Much like every other year, compliance professionals in 2025 face potential changes to CIP rules. The most significant changes include:
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- Partial SSN collection — Banks may be permitted to collect only the last four digits of a new customer’s Social Security number (SSN).
- Third-party verification — The full SSN would be obtained from a reputable third-party source before the account is opened.
- Modernization of on-boarding — This approach is intended to align regulatory requirements with modern on-boarding processes currently used by many non-bank financial technology firms.
- Enhanced customer experience — The proposed change aims to reduce friction between customers and the bank by simplifying the account-opening process.
- Potential for increased automation — The use of third-party verification tools could lead to more automated on-boarding processes.
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A joint proposal from U.S. Securities and Exchange Commission and the U.S. Treasury Department’s Financial Crimes Enforcement Network means that it is likely that the CIP rule will be changed within the next year, likely as an update withing the AML rule, which already includes CIP requirements for some investment advisers.
These potential changes to CIP rules reflect the dynamic nature of the financial industry and its regulatory environment and seek to modernize the on-boarding process, aligning it more closely with common practices used by non-bank financial technology firms. In short, these changes are designed to enhance customer experience by reducing friction and simplifying account opening procedures while leveraging automation for greater efficiency.
As financial institutions implement these updates, they will be better positioned to address new challenges, optimize compliance, and continue providing secure and seamless services in an increasingly fast-paced business environment. As a best practice, however, customer-facing institutions should pay close attention to the imminent regulatory changes as well as the timing for compliance. It is likely that compliance effective dates will lie in 2026, but it is important not to rest on that assumption.
The future in real-time
As financial institutions navigate the evolving landscape of real-time transactions, the necessity for efficient customer on-boarding processes becomes increasingly critical — and CIP plays a pivotal role in that. Indeed, CIP not only ensures the demand for speed but also helps financial institutions in their fight against financial crime.
As such, compliance with CIP regulations is essential for managing risks, fostering trust among stakeholders, and supporting ongoing monitoring efforts. And as regulations and technologies advance, financial institutions need to continuously adapt to best maintain robust defenses and operational efficiency, protecting themselves and their customers from illicit activity.
You can find more information on the challenges financial institutions face in fighting money laundering and other financial fraud here
