Final answer:
Broker-Dealers are required to keep records of the methods used to verify a customer's identity, in compliance with laws like the Real ID Act of 2005 that mandate stringent homeland security measures. The act imposes hefty costs on states for the issuance of secure identification, but full compliance has been achieved across the U.S.
Step-by-step explanation:
A Broker-Dealer (BD) must maintain records of the methods used to verify a customer's identity. This is a process influenced by regulations such as the Real ID Act of 2005, which is a federal law aimed at enhancing homeland security.
The act stipulates that driver's licenses and state-issued identification cards (DL/IDs) must include specific anti-fraud security features, as well as certain data and machine-readable technology.
Moreover, it requires rigorous verification of an individual's identity when reissuing these documents. The Department of Homeland Security rolled out phased enforcement starting in 2013, which impacted the ability to board commercial flights without a compliant DL/ID beginning in 2016.
The implementation of the Real ID Act has been financially burdensome for many states, with estimated costs around $11 billion, and only partial reimbursements from the federal government. Nevertheless, all fifty states and the District of Columbia have eventually met compliance rules.
The need for BDs to maintain verification records aligns with these enhanced security measures and anti-fraud requirements to help prevent misuse and protect against identity theft.