There may be a hearing ahead, but the Treasury Financial Crimes Enforcement Network (FinCEN) rule requiring financial institutions to verify the identity of beneficial owners at account opening takes effect today. So says a reminder sent out this morning by FinCEN.
Today is the effective date of a customer due diligence (CDD) rule that amends requirements under the Bank Secrecy Act (BSA). It’s aimed at clarifying and strengthening customer due diligence requirements for covered institutions and, for the first time, requires them to identify and verify the identity the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.
With respect to beneficial ownership information, financial institutions are required to identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity.
Covered financial institutions include U.S. banks, mutual funds brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities.
These covered institutions, FinCEN reminds, are required 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.
A second House Financial Services subcommittee hearing is scheduled on the rule for May 16. This hearing will be held by the Terrorism and Illicit Finance Subcommittee at 2 p.m. ET. The earlier hearing, by the Financial Institutions and Consumer Credit Subcommittee, was held April 27.
During the April 27 hearing, 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.”
FinCEN’s reminder today included links to the rule and two previous FAQs.