Banks in the United States will have more flexibility in how they collect Taxpayer Identification Numbers (TINs) from customers following the introduction of new Customer Identification Program (CIP) regulations by FinCEN, the OCC, and the FDIC.
Comply Exchange, a provider of tax compliance software, recently delved into the update and what it means.
The updated framework marks a notable departure from previous practices, which typically required financial institutions to collect the full nine-digit TIN directly from customers at onboarding. The change recognises the challenges presented by digital banking channels and the need to balance data privacy with compliance obligations under IRS Code 3406, it said. This code mandates that banks secure complete and correct TINs for reportable payments, with a failure to do so potentially resulting in 24% backup withholding and penalties for both customers and banks.
For banks, this update creates the opportunity to utilise trusted third-party sources to obtain TIN data, potentially streamlining operations and reducing friction during the onboarding process.
The regulatory shift also underscores the growing importance of technology in compliance processes. AI-powered solutions are now positioned as critical tools to support identity verification and real-time TIN validation within banks’ customer onboarding journeys. Platforms such as Comply Admin and eForms, for example, can help financial institutions overcome challenges in collecting complete TINs when direct customer collection is not feasible.
These advanced technologies can automate and accelerate identity data collection, validate TINs against authoritative databases instantly, and reduce the risk of fraud while ensuring compliance with IRS Code 3406. They also support a smoother customer onboarding journey, minimising manual processes and potential errors while maintaining strong data security standards.
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