FinCEN's Beneficial Ownership Rule: New Due Diligence Requirements for Customer Ownership and Control

Description

The Rule, with a mandatory compliance date of May 11, 2018, can not only affect CFIs but also have a ripple effect on other entities, like FinTech companies that provide AML services. Under the Rule, CFIs must collect information from a legal entity customer on each individual who directly or indirectly owns 25% or more of the equity interest of the legal entity and an individual with management control over the legal entity. Counsel should prepare to advise CFIs on the intricacies of these requirements.

Although these beneficial ownership provisions form the part of the Rule that has attracted perhaps the most attention, the Rule goes beyond those requirements to impose comprehensive customer due diligence (CDD) requirements. Overall, the Rule requires CFIs to establish and maintain written policies and procedures that are reasonably designed to (1) identify and verify the identity of customers; (2) identify and verify the identity of the beneficial owners of companies opening accounts; (3) understand the nature and purpose of customer relationships to develop customer risk profiles; and (4) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

On Apr. 3, 2018, FinCEN issued new FAQs on the Rule that confirm the need to look upstream through all relevant tiers of ownership to the individual owners of each legal entity customer. The FAQs provide guidance on other matters, including customer information which must be collected, record retention, and procedures which must be followed for multiple accounts or account renewals.

Listen as our authoritative panel analyzes the Rule and its impact on the AML programs of CFIs.