Patriot Act Compliance

What is the Patriot Act?

The Patriot Act, which amends the Bank Secrecy Act (BSA), was adopted in response to the September 11, 2001 terrorist attacks. The Patriot Act is intended to strengthen U.S. measures to prevent, detect, and prosecute international money laundering and the financing of terrorism. These efforts include anti-money laundering (AML) tools that impact the banking, financial, and investment communities.

The provision of the Patriot Act that has resulted in the most substantial business practice changes in the financial services industry revolves around “know your customer” requirements applicable to specific financial institutions.
  • Mutual funds
  • Operators of a credit card system
  • Money service businesses
  • Broker-dealer members of the Financial Industry Regulatory Authority (FINRA)
  • Broker-dealer members of the New York stock exchange
  • Insurance companies
  • Dealers in precious metals, stones or jewels

What is Know Your Customer (KYC)?

Know Your Customer, or KYC, refers to the regulatory compliance mandate imposed on financial service providers to implement a Customer Identification Program (CIP) and perform due diligence checks before doing business with a person or entity. Section 326 of the Patriot Act deals specifically with the identification of new customers, and made extensive provisions in terms of KYC and the methods employed to verify client identities. As a result, financial institutions are now accountable for the effectiveness of their initial customer identification and ongoing KYC screening. They are also required to keep detailed records of the steps taken to verify prospective clients’ identities.

Lyons Commercial Data provides full support to financial institution clients with key tools designed to assist in Patriot Act compliance:

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