Life insurers are praising the final customer identification requirements applying to broker-dealers issued last week by the Treasury Department, saying they hope the philosophy underlying them will carry through to the pending rule covering insurance companies.
Carl Wilkerson, chief counsel for securities with the American Council of Life Insurers, Washington, says the final rule, which also applies to banks and mutual funds, takes a risk-based approach to establishing customer identification programs (CIP) that are based on circumstances.
He specifically praises several issues that are important to insurance companies.
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First, Wilkerson notes, the final rule clarifies when a person becomes a customer. Under the rule, a person is a customer when there is an actual transaction.
Thus, a preliminary conversation with a person does not make that person a customer for purposes of the CIP program.
That, Wilkerson says, is very helpful for insurance distributors.
Second, he notes, if a financial institution is dealing with a group contract subject to Labor Department oversight, the group is not a customer for CIP purposes.
In addition, Wilkerson says, the final rule permits a financial institution to rely on another regulated U.S. financial institution to perform any part of the CIP.
Treasury provides the example of one broker who conducts securities trades on behalf of a customer through a clearing broker.
Under the regulation, the first broker is required to identify and verify the indentity of the customer, and the clearing broker can rely on that information without having to conduct a second verification.
In addition, Wilkerson notes the final rule provides some flexibility regarding procedures used to verify a customers identity.
He notes that the proposed rule would have required those covered by the legislation to make a copy of a customers identification, such as a drivers license.
In effect, he says, this could have required those who do business across a kitchen table to carry copying machines with them.
However, the final rule softens this requirement by instead requiring those covered by the act to record what they relied upon to verify identity.
The CIP rule is part of the USA Patriot Act, legislation that was approved following the Sept. 11, 2001, terrorist attack which requires financial institutions to establish anti-money-laundering programs that include customer identification.
In other news, the Association for Advanced Life Underwriting, Falls Church, Va., is planning to meet with 150 to 200 members of Congress this week during its annual meeting, says Association President Albert J. “Bud” Schiff, who is also president of Stamford, Conn.-based NYLEX Benefits.