Beneficial Owner New Account Rules: What FinTech AML Program Managers and Their Financial Institutions Need to Know

By Dan Cohen and  John ReVeal

FinCEN’s new beneficial owner rules take effect May 11, impacting banks and the program managers and similar companies that help banks comply with the Bank Secrecy Act, including FinTech companies that provide AML on-boarding and monitoring services.  Under the new rules, banks and other covered financial institutions will be required to identify and verify the identity of the beneficial owners of their legal entity customers.  These rules will add to your regulatory burdens, particularly over the next several weeks.

The rules require a covered institution to identify each individual who directly or indirectly owns 25 percent or more of the equity interest of the customer, and one individual with significant responsibility to control or direct the customer.  Depending on the entity’s structure, this could be one to five individuals.

To obtain these individuals’ names, the bank must require the individual opening the account for the entity to certify who those persons are.  The bank must verify the identity of each beneficial owner using procedures that are similar, but not identical, to the customer identification procedures (CIP) used by the bank to identify its customers.

Perhaps the greatest burden is that the bank must perform this beneficial owner due diligence each time the legal entity opens a new account.  Although the BSA does not require new CIP on an existing customer for each new account, these rules require new beneficial owner due diligence for each account.  A “new account” includes the renewal of any loan or certificate of deposit.  If the bank has CDs that renew after May 11, the bank must perform the beneficial owner due diligence when the CD renews.  If the bank has CDs that renew shortly after May 11, it might already be sending CD renewal notices and needs to have processes in place to obtain certified beneficial owner information now.

FinCEN has granted one concession: for each subsequent loan or CD renewal after the bank has obtained certified beneficial owner information, the bank need not obtain this certified information again, so long as the customer has agreed to notify the bank of any change in such information and the bank has no knowledge of facts that would call into question the reliability of the information.  This approach is likely available only if the terms of the loan or CD remain the same after renewal.  If the terms change, the bank likely will need to obtain the certified beneficial owner information again.

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