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Applying CIP to Prepaid Cards Holders

CubeIQ Limited
Published by in Risk & Compliance ·
Tags: #CIP#AML#PrePaidCards

Prepaid cards have become mainstream financial products, used by individuals, corporations, and other private sector entities, as well as by state, federal, and local governments. General purpose prepaid cards can be used at multiple, unaffiliated merchants and permit cardholders to perform a variety of functions, including some that have traditionally been conducted using other mechanisms, such as checks or debit cards tied to bank deposit accounts or credit cards. Such functions include withdrawing cash at automated teller machines, paying bills, and transferring funds to and receiving funds from other cardholders.

U.S. Federal Financial Institution Regulatory Agencies have clarified that money laundering and other financial crime risks associated with the issuance of prepaid cards and the processing of prepaid card transactions require the implementation of strong and effective mitigating controls. Controls already put in place, such as limits on card value and the frequency and number of transfers permitted, and due diligence on third parties and cardholders have assisted in mitigating these risks. In March 2018, two years are closing from the date that U.S. Federal Financial Institution Regulatory Agencies issued a common guidance clarifying the applicability of the Customer Identification Program (AML/CIP) rule to prepaid cards issued by banks.

The guidance applies to banks, savings associations, credit unions, and U.S. branches and agencies of foreign banks (collectively “banks”). The guidance clarifies that a bank’s CIP should apply to the holders of certain prepaid cards issued by the institution as well as holders of such prepaid cards purchased under arrangements with third-party program managers that sell, distribute, promote, or market the prepaid cards on the bank’s behalf.

Banks when implementing the CIP rules for prepaid card programs (including general purpose prepaid cards), that provide the cardholder with either the ability to reload funds or access to credit or overdraft features, should identify the actual cardholder as the customer.

The guidance describes when, in accordance with the CIP rule, the bank should obtain information sufficient to reasonably verify the identity of the cardholder, including at a minimum, obtaining the name, date of birth, address, and identification number, such as the Taxpayer Identification Number, Passport Number or Social Security Number of the cardholder.

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