90-day exceptive relief from FinCEN beneficial ownership rule given for auto-rollover accounts like CDs

FinCEN’s Kenneth Blanco testifies before the House subcommittee on terrorism and illicit finance May 16.

The Financial Crimes Enforcement Network (FinCEN) on Wednesday issued an administrative ruling providing 90-day exceptive relief from beneficial ownership requirements for legal entity customers, prescribed under the network’s customer due diligence (CDD) rule, for accounts that automatically rollover or renew, such as certificates of deposit or loan accounts.

This exception begins, retroactively, on May 11, 2018 – the new rule’s effective date – and will expire on Aug. 9, 2018, FinCEN said. “During this time, FinCEN will determine whether and to what extent additional exceptive relief may be appropriate for such financial products and services that were established before May 11, 2018, but are expected to rollover or renew after such date,” it added.

The ruling, the second exceptive relief ruling issued since Friday, was released within a couple hours after a hearing on the rule featuring testimony by FinCEN Director Kenneth Blanco.

During the hearing, Blanco said FinCEN is aware that there will be “wrinkles” early on with this new Bank Secrecy Act (BSA) rule and that his agency will be working with covered institutions and their regulators to iron those out.

“The misuse of legal entities to disguise illicit activity has been a key vulnerability in the U.S. financial system. Corporate structures have facilitated anonymous access to the financial system for criminal activity and terrorism,” he said in testimony prepared for Wednesday’s hearing by the House Financial Services Subcommittee on Terrorism and Illicit Finance. “… Our goal in this rule is to gain the transparency needed to protect the U.S. financial system and to prevent, deter, detect and disrupt money laundering, terrorist financing, and other serious crimes.”

Blanco briefed the panel on the multi-year process, dating back to 2012, that culminated in finalization of the rule that took effect Friday. The key new requirement is that covered institutions – including, banks, savings institutions, credit unions and other entities – collect beneficial ownership information on new accounts.

The rule’s basic information gathering requirements can be met, he said, by obtaining certification of the information from the legal entity customer opening the account. “The covered financial institution generally does not have to go beyond what is provided, unless it has reason to believe that the information provided is unreliable,” he testified.

Blanco underscored the importance of full compliance with this new rule but acknowledged a learning curve. “It is important for us to continue to work with our regulatory partners, their examiners and financial institutions to achieve these objectives through compliance with the rule. It is equally important, however, to understand that seamless implementation does not happen overnight and, for some areas, we all will need time to benefit from cumulative practical experiences with the new rule as part of the process.”

FinCEN first released an advance notice of proposed rulemaking (ANPR) in 2012; that ANPR generated 90 comment letters. Five public hearings followed, and a notice of proposed rulemaking was released in 2014. In response to comments (141 were received), FinCEN extended the planned compliance period from one year to two years. It also published two sets of FAQs; the more recent one was released this April.

FinCEN Administrative Ruling – Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Automatic Rollovers or Renewals

Testimony of FinCEN Director Kenneth Blanco