FinCEN Publishes 37 Much-Anticipated Beneficial Ownership FAQs

File this under: News You've Been Waiting For...

Last week, FinCEN published the "Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions." As we approach the implementation deadline for the Customer Due Diligence/Beneficial Ownership next month, it's good news that the FAQs are finally out. Learn more about what's included and where to find them in this post.

The Financial Crimes Enforcement Network, or FinCEN, has set May 11, 2018 as the final implementation date for the Customer Due Diligence Final Rule, also known as the Fifth Pillar of BSA/AML compliance. As financial institutions nationwide work to prepare for these CDD and Beneficial Ownership requirements, inevitably, they've had questions. FinCEN's recently released FAQs are an opportunity to get answers to some of the most frequently asked questions.

Learn the 37 questions answered by FinCEN, and get even more resources about the upcoming CDD/Beneficial Ownership rule.

If you have any of the following questions, take a look at the recently released FAQs. If not, scroll on to the next section to get links to even more CDD/Beneficial Ownership resources.

Here are the 37 questions answered in FinCEN's "Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions," in order: 

1. Can a covered financial institution adopt and implement more stringent written internal policies and procedures for the collection of beneficial ownership information than the obligations prescribed by the Beneficial Ownership Requirements for Legal Entity Customers?
2. Are there circumstances where covered financial institutions should consider collecting beneficial ownership information at a lower equity interest threshold under the anti-money laundering (AML) program rules with regard to certain customers?
3. When a legal entity is identified as owning 25 percent or more of a legal entity customer that is opening an account, is it necessary for a covered financial institution to request beneficial ownership information on the legal entity identified as an owner?
4. What means of identity verification are sufficient to reliably confirm beneficial ownership under the CDD Rule?
5. What address should be obtained for a legal entity customer’s beneficial owner(s) to comply with the certification requirement – residential or business?
6. What process should a covered financial institution use to identify and verify the identity of a beneficial owner of a legal entity customer when t he beneficial owner is unavailable to appear in person during the opening of a new account and chooses to provide to the legal entity’s representative a copy of a driver’s license?
7. If an individual named as a beneficial owner of a new legal entity account is an existing customer of the covered financial institution subject to the financial institution’s CIP, is a covered financial institution still required to identify and verify the identity of this  individual, or may it rely on the CIP identification and verification of the individual that it previously performed?
8. Are covered financial institutions required to use the beneficial ownership Certification Form (Appendix A to the Rule) and if so, how can they obtain a copy of the Form?
9. If a covered financial institution has updated the beneficial ownership information on the account(s) of a legal entity customer, and subsequently a new account is opened on behalf of the same legal entity customer, is the institution required to retain all sets of beneficial ownership documentation, thereby retaining up to three sets of information: the original set collected at account opening, the updated set, and a third, a duplicate of the second (updated) set for the new account?
10. If a legal entity customer opens multiple accounts at a covered financial institution (whether or not simultaneously), must the financial institution identify and verify the customer’s beneficial ownership for each account?
11. FinCEN understands that after a covered financial institution (particularly in the securities and futures industries) opens a new account for a legal entity customer and identifies its beneficial ownership, the financial institution may subsequently open one or more additional accounts or sub-accounts for that customer – for the institution’s own recordkeeping or operational purposes and not at the customer’s specific request – so that the customer may, for example invest in particular products or implement particular trading strategies. Would such accounts fall within the definition of “new accounts” for purposes of the beneficial ownership requirement?
12. Are financial institutions required to have their legal entity customers certify the beneficial owners for existing customers during the course of a financial product renewal (e.g., a loan renewal or certificate of deposit)?
13. Are covered financial institutions required to collect or update beneficial ownership information on customers with accounts opened prior to May 11, 2018, the Rule’s applicability date?
14. Are covered financial institutions required to obtain or update beneficial ownership information during routine periodic reviews of existing accounts, absent risk-based concerns; that is, are such reviews a trigger for the application of the Rule’s beneficial ownership requirements?
15. Are covered financial institutions required to implement different processes than currently established to comply with the Rule’s ongoing monitoring and updating requirement?
16. If an update to beneficial ownership information is required, can the change(s) be made in a covered financial institution’s databases without physically obtaining and re-certifying the information?
17. Does FinCEN distinguish between the requirements for identifying and verifying beneficial owner information at the time of a new account opening and at the time of a triggering event?
18. Are covered financial institutions required to identify and verify the identity of the beneficial owners that own 25 percent or more of the ownership interests of a pooled investment vehicle whose operators or advisers are not excluded from the definition of legal entity customer?
19. When 25 percent or more of the equity interests of a legal entity customer are owned by a trust that is overseen by co-trustees (multiple trustees), are covered financial institutions required to identify and verify the identity of all co-trustees?
20. If a legal entity is the trustee (e.g., law firm, bank trust department, etc.) of a trust that owns 25 percent or more of the equity interests of a legal entity customer, can that entity be identified as a beneficial owner under the ownership/equity prong or does a natural person need to be so identified?
21. What methods should covered financial institutions use to verify eligibility for exclusion from the definition of a “legal entity customer”?
22. Are sole proprietorships formed by spouses or other unincorporated associations considered legal entity customers under the Rule?
23. Are covered financial institutions limited to the Internal Revenue Code (IRC) definitions of charities, non-profits, or similar entities when assessing their eligibility for exclusion from the definition of legal entity customer?
24. Are companies publicly traded in the United States and entities listed on foreign exchanges excluded from the definition of legal entity customer and, therefore, excluded by the Rule?
25. May covered financial institutions take a risk-based approach for collecting beneficial ownership information from legal entity customers listed on foreign exchanges?
26. Does the exclusion for foreign financial institutions from the Rule’s definition of “legal entity customer” depend on whether the beneficial ownership requirements applied by such institution’s foreign regulator match U.S. requirements?
27. Will the U.S. Government maintain a list of non-U.S. jurisdictions where the regulator of financial institutions within that jurisdiction maintains beneficial ownership information regarding the financial institutions they regulate or supervise?
28. What types of entities would be considered a “non-U.S. governmental department, agency or political subdivision that engages only in governmental rather than commercial activities” such that they would qualify for exclusion from the definition of a legal entity customer?
29. Does the point of sale exception only apply to accounts opened at the cash register or does it refer to all applications for credit accounts that are for use at the private label retailer only?
30. What kind of businesses and equipment are covered under the equipment finance exemption?
31. Does the equipment lease and purchase exemption apply when the customer leases directly from the covered institution?
32. Under what circumstances should the transactions of a legal entity customer and those of the beneficial owner(s) be aggregated for purposes of filing a CTR? Are financial institutions required to proactively cross-check beneficial ownership information to comply with the CTR aggregation requirement?
33. When completing a CTR for a business (i.e., corporations, limited liability companies, and general partnerships) will beneficial owners now need to be listed as beneficiaries in such CTRs? If yes, would this also include trust and estate accounts?
34. Are covered financial institutions now required to follow specific procedures to approve changes to AML programs or require Boards of Directors or senior management to approve such changes? Can Federal functional regulators direct financial institutions within their jurisdiction to follow a specific approval process?
35. The Rule requires financial institutions to understand “the nature and purpose of customer relationships to develop a customer risk profile.” What type of information should financial institutions collect to satisfy this requirement and may the documentation of the nature and purpose of a customer relationship be made on a risk-basis?
36. Once the nature and purpose of a customer relationship has been established, what are FinCEN’s expectations concerning the use of this information?
37. In understanding the nature and purpose of customer relationships, are financial institutions required to develop and document customer risk profiles for self-evident products or customer type (e.g., a safe deposit box)?

Here are FinCEN's FAQs and answers.

Additional CDD/Beneficial Ownership Resources

• Quick Guide to Fifth Pillar of BSA AML Compliance
  • Get this guide to learn all about the basics of the enhanced Customer Due Diligence rule, and other important compliance requirements.
• Customer Due Diligence Final Rule
  • For your reference, here is a link to the text of the Final Rule.
• CDD Technical Corrections
  • Last year, the regulators issued technical corrections to the CDD rule. They are here.
• Financial Action Task Force (FATF)'s Guide to Transparency and Beneficial Ownership
  • Even though this resource is from 2014, it provides good details that can help you understand Beneficial Ownership, especially if you're looking for a more detailed, practical, and/or academic approach to the topic.

Ncontracts Viewpoint: As you prepare for the fifth pillar of BSA/AML compliance, know that the CAMS-certified team of compliance and growth experts at Ncontracts are here to help.

Related: What Is A Compliance Management System And Why Your FI Needs One