Another hearing set for BSA/AML ‘customer due diligence’ rule, following Friday compliance date

A second hearing on the “customer due diligence” (CDD) rule, particularly the “beneficial ownership” requirements – compliance for which are required by Friday – has been scheduled by a House committee for next week.

The hearing follows up on a hearing held last month offering financial institution views of the rule issued by the Treasury’s financial crimes-targeting unit, the Financial Crimes Enforcement Network (FinCEN).

The House terrorism and illicit finance subcommittee has set the hearing for Wednesday (May 16) at 2 p.m., focusing on implementation of the rule. No witness list has yet been released.

The final rule (with a compliance/effective date of May 11) requires all “covered” institutions – depository institutions as well as brokers or dealers in securities, mutual funds and others) – to collect and verify the personal information of the real people (also known as “beneficial owners”) who own, control, and profit from companies (“legal entity customers”) when those companies open accounts.

Under this new requirement, institutions will have to identify and verify the identity of any individual who owns 25% or more of a legal entity, and an individual who controls the legal entity.

In issuing the final rule, FinCEN listed four core elements of CDD that it said should be “explicit requirements in the anti-money laundering (AML) program for all covered financial institutions, in order to ensure clarity and consistency across sectors.” These are (1) customer identification and verification, (2) beneficial ownership identification and verification, (3) understanding the nature and purpose of customer relationships to develop a customer risk profile, and (4) ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating customer information.

The first of these elements was already an AML program requirement, the agency said, and the 2016 rule addressed the second. “The third and fourth elements are already implicitly required for covered financial institutions to comply with their suspicious activity reporting requirements,” it said.

The National Credit Union Administration (NCUA) has said it plans to begin examining for credit union compliance during the second half of this year. The Office of the Comptroller of the Currency (OCC) also included compliance for banks and savings institutions in its 2018 supervisory plan.

In a hearing April 27 hearing before the House financial institutions subcommittee, witnesses representing financial institutions asserted that FinCEN-released guidance for implementation of the rule “detracts from the clarity and predictability of the CDD rule, and the process by which the rule will be implemented.”

The Clearing House (TCH) Association also pointed out, in written testimony, that the guidance was not subject to notice and comment and “was in some instances based on prior guidance, also released without notice and comment, by the federal banking agencies and other regulators.”

The organization, a banking payments company owned by 25 large banks, said it is also concerned that the banking agencies, “perhaps with endorsement from FinCEN,” may reinterpret the rules going forward.

The group recommended, in its testimony, that “in order to provide covered institutions and FinCEN with additional time to resolve or provide clarity and comfort,” it encouraged the Treasury agency to “to grant exceptive relief on various aspects of the rule” to provide clarity, or as a way to provide institutions with additional time to calibrate their programs.

Hearing entitled “Implementation of FinCEN’s Customer Due Diligence Rule” (May 16, 2 p.m.; terrorism and illicit finance subcommittee of the House Financial Services Committee)

Hearing entitled “Implementation of FinCEN’s Customer Due Diligence Rule – Financial Institution Perspective”  (April 27, financial institutions and consumer credit subcommittee of the House Financial Services Committee)