From: BReaume@mea.org Sent: Tuesday, October 01, 2002 4:35 PM To: rule-comments@sec.gov Cc: Paul H Gonzalez Subject: Comments to SEC File No. S7-25-02 October 1, 2002 Paradigm Equities, Inc. East Lansing, MI 48823 1-800-282-1950 Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington D.C. 20549-0609 rule-comments@sec.gov SEC File No. S7-25-02 Re: Comments on Joint Notice of Proposed Rulemaking for USA Patriot Act Section 326 Customer Identification Program (CIP), SEC File No. S7-25-02 Ladies and Gentleman: Paradigm Equities, Inc. thanks you for the opportunity to comment on the proposed regulation concerning the Customer Identification Program ("CIP") issued by the Securities and Exchange Commission and the Department of the Treasury under Section 326 of the USA Patriot Act ("Act"). Paradigm recognizes that the comment period for the proposed regulation ended September 6, 2002, however, appreciates an opportunity to respond to an issue that will have a significant impact on the financial services industry. Paradigm Equities, Inc. is an introducing broker-dealer providing mutual funds and variable annuities primarily through 403(b) programs, 457 plans and after tax investment programs. Paradigm's customer base is comprised mainly of public school employees throughout the State of Michigan who open and contribute to their accounts using salary reduction agreements set-up through their employing school district. Paradigm maintains a marketing force of approximately 60 registered representatives who work from non-registered, home based offices and whose main contact with customers is either at the customer's residence or at their place of employment i.e. school grounds. Paradigm strongly supports the goals of the Patriot Act and is committed to strengthening anti-terrorist financing and customer identification programs through the implementation of rigorous Anti-Money Laundering policies. We, like several commenters, support the proposed CIP rule as providing firms with a reasonable and risk based framework for establishing a customer identification program which would take into consideration such factors as the broker-dealer's customer base, the types of transactions the broker-dealer executes for customers and the method by which customers open accounts at the broker-dealer. We would like to comment specifically on the provision of the proposed regulation that requires broker-dealers to maintain copies of any documents used in the documentary method of verifying customer identity. Paradigm believes this provision to be both impractical and burdensome to where the cost of procurement and recordkeeping would greatly outweigh the benefit. As most, if not all, of Paradigm's account openings take place in the client's residence or a similar place, the opportunity to copy a customer's verification documents would not exist at the time of the account opening. Requiring that the customer forward a copy to Paradigm of said document before opening the account or within a reasonable time frame thereafter, would also be unduly burdensome on both the customer and on the follow-up recordkeeping of Paradigm and its registered representatives. At the time of the account opening, Paradigm's registered representatives collect a variety of information about the customer which, while satisfying NASD rules, also serves to allow the representative to have a clear understanding of the client's investment profile as well as their identity and place of employment. Information collected includes: name, birth date, social security or tax identification number, home address and telephone number, place and address of employment and various investment based information i.e. investment objective, net worth and risk tolerance. As noted, the majority of our customer base is comprised of school employees who are funding various retirement programs through the use of payroll or salary reduction agreements with their employers. The proposed regulation which would require broker-dealers, regardless of their customer base or types of accounts, to document the method by which identity was verified i.e. photocopy a drivers license or similar document, would in Paradigm's case be redundant as the majority of our clients are opening and contributing to their accounts through salary reduction agreements, which, when executed, serve to verify the customer's place of employment. As the representative has verified the client's place of employment, and thus identity, through the issuance and execution of the salary reduction agreement, it would seem that requiring a representative, who meets with customers in their residences, to photocopy the customers identifying documents would be not only repetitive, but would also strain the customer/representative relationship. Additionally, as the majority of Paradigm's customers are public school employees, their identities and backgrounds have previously been subjected to rigorous screening procedures and tests as a condition of employment within their school district. Paradigm believes that a CIP which incorporates identification, verification and subsequent documentation procedures should be risk based and reasonable, as noted in the NASD Notice to Members 02-50, in consideration of a broker-dealer's size, location, customer base, method of account opening and transaction types. However, Paradigm believes that promulgating regulation which specifically requires certain verification and documentation methods would be overly burdensome in light of Paradigm's particular account opening process. Recognizing the desire of the Treasury to act quickly on the proposed rule, Paradigm Equities, Inc. would also like to recommend that Treasury and the various federal and self-regulatory organizations responsible for the final ruling extend the deadline for developing a CIP to at least 90 days from the issuance of the final rule and that financial institutions have one year from the issuance of the final rule to be in full compliance. As the effective date for the final rule is October 26, 2002, it would be impractical for institutions to be in full compliance as certain important and specific clarifications are needed and forthcoming. Again, Paradigm Equities, Inc. appreciates the opportunity to comment. We hope that these comments will help in the development of the final rule and the strengthening of the USA Patriot Act. Please feel free to contact me for clarification or elaboration on any of the comments found in this letter. Sincerely, Bruce M. Reaume Principal Compliance Officer Paradigm Equities, Inc. 517-337-5429 cc: via electronic mail Paul H. Gonzalez President, Paradigm Equities, Inc. 1480 Kendale Blvd East Lansing, MI 48823