What it means
A Customer Identification Program is a formal, written process that US banks, broker-dealers and similar institutions must follow under anti-money laundering rules. At a minimum, the firm collects identifying details such as name, date of birth, address and an identification number, then verifies them against reliable documents or data.
Other countries have comparable requirements, usually described as know your customer, or KYC, checks. The reason it matters is that criminals try to hide the source of money by opening accounts under false identities.
By verifying identity at the start, the firm reduces the chance of being used for fraud or money laundering, and it creates a record that regulators can inspect. Failing to run an adequate programme can lead to fines and damage to reputation.
For a business that sells to or banks with regulated firms, CIP shows up as paperwork. A company opening a corporate account may be asked for incorporation documents, details of its directors and information on the individuals who ultimately own it.
Having these ready in a tidy file shortens onboarding from weeks to days. The second meaning is worth keeping in mind.
In accounting, construction in progress, also written CIP or CWIP, is an asset account that collects the costs of an asset still being built, such as a factory or software platform. It is not depreciated until the asset is ready for use, at which point the balance moves to the relevant fixed asset category.
Always check the context before assuming which meaning applies. A line on a balance sheet labelled CIP is almost certainly construction in progress, while a line in a compliance procedure is almost certainly the identification programme.
Technology is changing how the programme works in practice. Many firms now use electronic checks of identity data and document scanning rather than paper copies, which shortens onboarding.
The legal duty stays the same, though, so the firm must still keep records of what was checked and be able to explain its decisions to a regulator.
In practice
Real-world examples.
Example
A founder opens a business account at a bank for her new consultancy. The bank asks for her passport, proof of address and company registration documents, and completes its identification checks in two days. The bank files the documents securely and sets a reminder to refresh them when the company's ownership changes.
Example
A brokerage firm onboarding a new online investor rejects an application when the supplied name and date of birth do not match the identity data it checks against. The compliance team records the decision and the reasons in the customer file. The firm also keeps the reason for rejection on file, which protects it if the applicant complains or a regulator asks.
Example
A shipping company's balance sheet shows $8,000,000 in construction in progress for a vessel being built at a yard. The balance sits unamortised until delivery, when it moves to vessels and begins to be depreciated. At that point the balance is also tested for impairment, because a delayed or cancelled project would require a write-down.
Case study
Seen in the real world.
Meridian Trade Finance is an illustrative, fictional lender to small exporters. Its onboarding was slow because each analyst collected identification documents in a different format, and files were often returned for missing items.
The compliance officer wrote a standard Customer Identification Program checklist with a template for each customer type, and trained the team to complete it before any credit review began. Files were checked against the checklist before approval.
Average onboarding time dropped from nineteen days to nine, and the next regulatory review found no missing records. The illustrative lesson is that a clear, consistent procedure makes compliance faster as well as safer.
Watch out
Common mistakes.
- Treating identification as a one-off form rather than a documented process with verification steps and record keeping.
- Assuming that a customer who has banked elsewhere for years does not need to be identified again.
- Confusing the Customer Identification Program with construction in progress when reading a document without checking the context.
Questions
People also ask.
Is CIP the same as KYC?
They are closely related; CIP is the identity verification part of a wider KYC process, which also covers understanding the customer's business and risk.
What does CIP mean on a balance sheet?
It means construction in progress, an account holding the cost of an asset still being built, which is not depreciated until the asset is ready for use.
Who has to run a Customer Identification Program?
Regulated financial firms such as banks and brokers do, and other countries impose similar duties under their own anti-money laundering laws.
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