It has been an active couple of weeks for FinCEN from a regulatory pronouncement perspective. For example, FinCEN has proposed a regulation to amend existing “know your customer” rules for certain financial institutions to require the verification of beneficial owners of legal entities. Legal entities in this context would mean corporations, partnerships or similar business entities. Public companies, regulated entities and trusts other than business and statutory trusts, would not be covered.
In addition, FinCEN issued an advisory for financial institutions on the importance of a “culture of compliance” with respect to BSA/AML. The guidance had these suggestions based on recent enforcement actions: ensure leadership that supports compliance; don’t mitigate BSA/AML efforts in light of revenue considerations; operating departments must share with compliance staff BSA/AML information; the organization must devote adequate resources to BSA/AML compliance; BSA/AML compliance should be tested by an independent party and the organization’s leadership and staff should understand the purpose and use of BSA/AML reporting. FIN-2014-A007 is available here.
FinCEN’s proposal to amend existing “know your customer” rules requires a financial institution would have to identify each individual who directly or indirectly own 25% or more of the equity and one individual who has responsibility to control, manage or direct the legal entity. This information is to be recorded on the standard certification form.
The proposal is available here. Comments are due on October 3rd, 2014. The original release contemplates that the rule would be effective one year after adoption, so it would appear that late 2015 is the earliest the final version of the regulation might become effective.
The proposed regulation is the culmination of a regulatory process that began in March 2012. While it is intended to be consistent with existing requirements for covered financial institutions, the proposed regulation is intended to address elements of a customer due diligence that had been previously unaddressed by regulation, according to FinCEN.
For FinCEN, the key elements of (customer due diligence) include: (i) identifying and verifying the identity of customers; (ii) identifying and verifying the identity of beneficial owners of legal entity customers (i.e., the natural persons who own or control legal entities); (iii) understanding the nature and purpose of customer relationships; and (iv) conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.
The first element is already included in existing customer identification program requirements. The rule change is intended to address the three remaining elements. For covered financial institutions FinCEN believes its proposal is “substantively” the same as existing requirements or rules issued by the regulatory agencies for those institutions.