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InfoSight Highlight: Customer Due Diligence and Beneficial Ownership
Friday, June 30, 2017 7:00 AM

On May 11, 2016, FinCEN published a final rule regarding Customer Due Diligence (CDD) Requirements for Financial Institutions. This rule amends the Bank Secrecy Act regulations and formalizes several existing practices related to the monitoring of customer activity, and it also adds new requirements that covered financial institutions establish and maintain written procedures that are reasonably designed to identify and verify the beneficial owners of legal entity customers. Financial institutions must comply with this new rule by May 11, 2018.

Beneficial Ownership
The newest requirement under the rule is the identification of beneficial ownership. At the time of opening an account for a legal entity, a financial institution must identify beneficial owners of that legal entity. Beneficial ownership falls into one of two categories:

  • Ownership: A person who owns 25 percent or more equity interest in the legal entity; or
  • Control: A person that has significant responsibility to control the legal entity, such as a senior management official or another person that performs similar actions (typically, a CEO, CFO, COO, manager, or person serving in similar capacity).

Information collected about the beneficial owner must include that person’s:

  • Name,
  • Date of birth,
  • Address, and
  • Social Security Number or other government identification number.

This information must be collected for any individual with 25 percent or more of the equity interest of the legal entity and at least one individual with significant responsibility to control/manage the legal entity at the time the account is opened. If the legal entity does not have an owner, or does not have an owner with at least 25 percent of the equity interest, the credit union must still obtain information for one individual under the control prong.

Once the credit union collects this information, it must verify it within a reasonable period of time. These verification procedures must contain at least the same elements for verifying the identity of individuals under the credit union’s existing CIP rule. Since acquiring proper verification documentation may be difficult, credit unions may rely on photocopies or other reproductions of identification documents when requiring documentary verification. Information need not be obtained directly from beneficial owners.

Beneficial owners are also subject to regulations from the Office of Foreign Assets Control, or OFAC, and must be checked against government lists.

These new beneficial ownership documentation rules are in addition to existing requirements, and the credit union must still collect and verify CIP information for the legal entity as required under existing rules.

Source:  InfoSight Compliance.

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