The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced it would allow banks to collect tax identification number (TIN) information from a third party instead of directly from customers under some circumstances.
The announcement came after FinCEN’s request for information process that started in March. Public comments indicated a need on the part of lenders for greater flexibility in meeting compliance requirements.
“We recognize that the way customers interact with banks and receive financial services has changed significantly since 2001, when the initial requirement was enacted into law under the Patriot Act,” FinCEN Director Andrea Gacki said in a press release. “This order reduces burden by providing banks with greater flexibility in determining how to fulfill their existing regulatory obligations without presenting a heightened risk of money laundering, terrorist financing, or other illicit finance activity.”
FinCEN’s order announcing the alternative TIN collection method was issued in coordination with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the National Credit Union Administration. The order permits a bank subject to the jurisdiction of these agencies to obtain TIN information from a third-party rather than from the customer, provided that the bank otherwise complies with the Customer Identification Program (CIP) rule.
The CIP rule requires banks to have written procedures to collect TIN information before opening accounts. These procedures are expected to help verify customer identities reasonably. Banks can choose whether to use an alternative method for obtaining TIN information from third-party sources before account opening.
Since the CIP rule was introduced in 2003, there has been a growth in how consumers use financial services and an increase in reluctance to give full TIN due to concerns about data breaches and identity theft, according to background findings in the order document.
Additionally, FinCEN said that it and its partner agencies have received public interest in allowing alternative methods for collecting information beyond credit card accounts. The recent public comment period found that banks might access various identifying attributes that could assist with customer verification.
Supporters of alternative methods highlighted their success with credit cards, while opponents argued they would raise costs for institutions that do not use third-party services. Some commenters questioned the reliability of these third-party sources for identity verification.
However, it was decided by FinCEN and its partner agencies that a valid basis existed for the exemption to the requirement for all banks subject to the jurisdiction of the agencies to obtain TIN information from the customer for all accounts.