Regulators Relax CIP Rule, But Oversight Has Never Been More Critical

A Shift in CIP Requirements

On June 27, 2025, federal regulators issued a joint order that changes how banks and credit unions can collect taxpayer identification numbers (TINs). Financial institutions are no longer required to obtain the TIN directly from the customer. Instead, they now have the option to pull this information from a third-party source, as long as their Customer Identification Program (CIP) still meets Bank Secrecy Act requirements and allows them to reasonably verify the customer’s identity before account opening.

Regulators say the change is meant to reflect how consumer behavior is evolving, with more people banking online and growing concerns about identity theft and digital privacy. While the update gives institutions more flexibility, it also introduces new risks, especially when it comes to data accuracy and staying compliant with core BSA obligations. Institutions will need to be thoughtful and cautious in how they implement this change.

Why Third-Party Data Isn’t Automatically Safer

Using third-party data for something as important as a TIN isn’t a simple plug-and-play solution. Financial institutions need to put strong oversight and quality checks in place to make sure the data they’re using is accurate, complete, and reliable. Without those controls, things can go wrong fast—like gaps in AML monitoring, flawed risk scores, and potential regulatory trouble.

The Hidden Ripple Effects of Bad Data

Faulty or mismatched TINs can quietly disrupt core compliance functions across a financial institution, often without immediate detection. One of the most overlooked consequences shows up in transaction monitoring which suffers when identity data isn’t consistent. Systems may fail to connect related activity across accounts, making suspicious behavior appear fragmented or low-risk. Structuring, layering, or other money laundering techniques might not raise red flags if the system treats one individual as multiple customers.

Sanctions screening and risk scoring are equally impacted. When customer identity data is flawed, screening algorithms may miss true matches or generate excessive false positives. Risk models that rely on complete and accurate profiles to assess customer behavior will begin to produce unreliable results. CTR aggregation is another area where these issues multiply. Inconsistent identity records can prevent institutions from linking multiple cash transactions to the same person, leading to missed reporting thresholds and potential compliance violations.

314(a) screening also becomes less effective when names and TINs on file don’t align properly, making it harder to match customers to law enforcement requests. This creates gaps in detection that can result in missed investigative leads or scrutiny during exams. Even broader business processes like onboarding and customer segmentation depend on clean identity data. When that data is flawed, everything from setting monitoring thresholds to determining eligibility for financial products becomes unreliable.

Oversight and Quality Assurance Must Be Non-Negotiable

This is why front-end accuracy matters so much. If a financial institution chooses to collect TINs through third-party sources, it must be absolutely confident in the reliability of that data. More importantly, there must be procedures in place to detect errors early, reach out to customers when needed, and make corrections promptly. If issues can’t be resolved, institutions must be prepared to pause or close the account rather than allow it to remain open with incomplete or incorrect CIP. A single weak data point can ripple across systems, processes, and regulatory obligations. What may seem like a small efficiency can quickly spiral into a wide-reaching compliance failure if not properly managed from the start.

Oversight begins with thorough vendor due diligence. Institutions should understand how TINs are sourced, what verification protocols are used, how often data is updated, and whether vendors validate against authoritative records. These factors must be documented, reviewed regularly, and reflected in vendor contracts with clear audit and service-level terms.

Once data is integrated into the institution’s systems, it should be continuously validated. Cross-checks between TINs, names, birthdates, and addresses can help flag anomalies. Institutions should also establish performance benchmarks to measure the reliability of vendor data over time and track how often records require correction or escalation.

There must be clear internal policies for handling unresolved mismatches. If identity cannot be verified with a reasonable degree of confidence, the institution should be prepared to escalate the case, place holds, or shut down the account. Allowing accounts to remain open with incomplete CIP is not an acceptable risk.

A Strategic, Not Tactical, Decision

Collecting TINs through a third party isn’t just a technical or operational decision. It’s a strategic decision that can impact your AML program, regulatory reporting, customer trust, and overall credibility. If your institution chooses to rely on this exemption, you need to be ready to stand behind that choice, not just at onboarding, but in every area that relies on accurate CIP data.

At ClearPath Compliance, we encourage financial institutions to take a fresh look at their CIP frameworks, tighten up vendor oversight, and think through how even small shifts in identity data management can affect the bigger compliance picture. Getting it wrong can come at a high cost, and it’s always better to invest the time up front to get it right.

If you need help updating your CIP procedures, reviewing third-party vendor controls, or strengthening your data governance, ClearPath Compliance is here to support you.