A new FinCEN rule under the Bank Secrecy Act will require institutions to more specifically identify legal entity customers and increase Anti-Money Laundering (AML) diligence. The rule will apply to “Covered Financial Institutions,” which includes banks; brokers or dealers in securities; mutual funds; and futures commission merchants and introducing brokers in commodities.
Under the rule, Covered Financial Institutions will be required to verify the identity of the beneficial owners of all legal entity customers when a new account is opened, with exceptions. A beneficial owner is an individual who owns more than 25 percent of the equity interests in a company or is the single individual who exercises control. Covered Financial Institutions will be in compliance with obtaining beneficial owner information by either obtaining the information on a model certification form or by any other method that complies with the substantive requirements of the rule. The procedures for identifying and verifying legal entity customers will be similar to the procedures for identifying individual customers under the Customer Identification Program (CIP). Covered Financial Institutions identifying beneficial owners of legal entity customers may rely on the information supplied by the customer, provided that there is “no knowledge of facts that would reasonably call into question the reliability of the information.” Covered Financial Institutions will be required to maintain records of the beneficial ownership information obtained, but may assign this duty to another financial instruction.
In addition, the FinCEN rule amends the Anti-Money Laundering (AML) Program Rule for each Covered Financial Institution to include risk-based procedures for conducting ongoing customer due diligence. The amended rule applies to all entity customers, including existing entity customers. The amended rule requires Covered Financial Institutions to develop a customer risk profile by using customer information gathered at account opening and using it as a baseline for suspicious activity reporting. The rule requires ongoing monitoring to identify and report suspicious transactions, and update the customer information. When a Covered Financial Institution detects relevant activity of a customer—for example, a change in beneficial ownership or increase in international wire activity—it is required to reassess and reevaluate the risk posed by the customer and update the customer information, including beneficial ownership information. The rule is event-driven, and does not require Covered Financial Institutions to update the information on a periodic basis.
The rule is effective July 11, 2016, but compliance will not be mandatory until May 11, 2018. The Federal Register is expected to publish the rule on May 11, 2016.