NU Online News Service, July 18, 3:25 p.m. — Washington
Broker-dealers should evaluate at least seven "risk factors" when determining how to set up the customer identification program mandated by the USA Patriot Act, according to a proposed rule released by the Treasury Department.
The proposed rule is supposed to give broker-dealers guidance on what constitutes "reasonable procedures" under the USA Patriot Act.
The USA Patriot Act, which was enacted in the aftermath of the Sept. 11, 2001, terrorist attacks, requires financial institutions to implement "reasonable procedures" to identify customers and determine whether the customers might appear on lists of known or suspected terrorists.
Treasury also released proposed rules for the banking and mutual fund industries, and it will soon release a proposed rule for the insurance industry.
The American Council of Life Insurers, Washington, says the broker-dealer rule alone would have a significant effect on the distributors of variable insurance and annuity products.
"For example, they will be involved in detailed verifications of their customers' identities, ensuring customers have government issued identification," says Carl Wilkerson, the ACLI's chief counsel for securities.
"In effect, variable product distributors will have to ensure their customers are the people they say they are," he says.
Wilkerson says the ACLI is now reviewing the proposed rule on broker-dealers.
Specifically, the proposed rule says that, when broker-dealers are setting up a customer identification program, they should consider several risk factors. The proposal notes, however, that the listing of risk factors is for guidance only and is not meant to be an exhaustive list.
The first factor, the proposal says, is the broker-dealer's size.
A large firm that opens a substantial number of accounts on a given day will have different risks than one that only opens one or two a month, the proposal says.
The same is true with respect to the number of branches, the proposal adds.
