customer due diligence/beneficial ownership … conference/cox__cdd_final...demonstrates us...

Customer Due Diligence/Beneficial

Ownership Final Rule

FEDERAL DEPOSIT INSURANCE CORPORATION

Objectives

Understand what is needed to implement the

Final CDD/Beneficial Ownership Rule.

Identify how the Final Rule applies to the due

diligence process.

Prepare institutions for May 11, 2018.


CDD & Beneficial Ownership Purpose

Enhances transparency of legal entities.

Demonstrates US leadership & credibility in

combatting financial crime.

Protecting US & international financial

system.

Supports enforcement of AML, sanctions, tax

regulations, and combats terrorist financing.

Supports financial institution monitoring

efforts.


Timeline of CDD Final Rule

2/29/2012 FinCEN Proposes Beneficial

Ownership Rules

↓ Industry input, outreach events, revisions

7/30/2014 Expected CDD rule w/o new

verification requirement

↓ Industry input, outreach events, revisions

12/23/2015 FinCEN cites costs and benefits

5/11/2016 FinCEN finalizes and publishes


CDD Final Rule

Codifies existing regulatory expectations

concerning customer due diligence (CDD)

Adds requirement to identify & verify

beneficial owners of legal entity customers

• Subject to some exclusions & exemptions

• With an optional model form to assist in

collection


CDD as a BSA Compliance Program

Component “Pillar”

Appropriate risk-based procedures for

conducting ongoing CDD to:

1. Understand the nature and purpose of

customer relationships;

2. Conduct ongoing monitoring to identify and

report suspicious transactions; and

3. On a risk basis, to maintain and update

customer information.


Regulatory Expectations:

Before May 11, 2018

Process for Obtaining Beneficial Ownership

or Control Info for 1-5 Individuals.

o New Accounts

o During Customer Monitoring

Supporting Polices & Procedures

Customer Risk Profile Development

Training Development


Regulatory Expectations:

After May 11, 2018

New accounts opened for new or existing

legal entity customers.

Beneficial ownership information obtained

for monitored accounts in normal course of

business.

Customer risk profile is updated based on

obtained information.


CIP Requirements

Name

Date of birth

Address

Social security number or other government

identification numberOr

Passport number or other similar information

in the case of foreign persons


How is this simplified in practice?

Verification: May generally rely on

information provided by legal entity

customers to establish identity of beneficial

ownership.

• Unless there is a reason to question the accuracy

• Photocopies of identity documents allowed.

Person opening the account provides the

information on owners and controlling

manager.


Collect Beneficial Information on Who?

Ownership Prong: Individual (persons, not

entities) that own directly or indirectly 25% or

more of equity interest of a legal entity

customer.

&

Control Prong: Individual with significant

responsibility to control, manage or direct a

legal entity customer.

4 owners + 1 (manager) = 5 maximum


Control Prong Only

Only the Control Prong of the Beneficial

Ownership test is necessary for the

following:

• Charities

• Nonprofits

• Non-excluded pooled investment vehicles

Key to Control Prong:

• Significant responsibility to control, manage, or direct

the company. Not just the first ‘titled’ individual

available.


Updates to Beneficial Owner(s)

Initial information is a snapshot

Not a continuous obligation to update

Update based on risk profile

Updates are event driven, when determined

in the normal course of monitoring.


Legal Entity Defined

Legal Entity

Created by filing of

public document with

domestic or foreign

government.

• Corporation

• Limited Liability Company

• Partnership, including

limited partnerships

• Business trusts (registered)

Not A Legal Entity

Natural person

Sole proprietorship

Unincorporated associations

Natural person

Unregistered trust

An excluded entity


Legal Entity Exclusions

Financial institutions with a federal functional regulator

SEC or CFTC Registered Entities (various)

Insurance Company

Bank Holding Companies

Private Bank Subject to 31 CFR 1010.620

• (Foreign & $1 Million Minimum)

For more details see FIN-2016-G003 FAQ #21


Trusts

CDD Rule does not supersede existing obligations or practices regarding trusts

Existing CIP - Does not require a look through to beneficiaries.• Additional steps might be needed, such as

information on persons controlling the account.

• Particularly for revocable trusts.

Under Final CDD - Trustee can be a beneficial owner, if trustee owns more than 25%.


Exemptions

Four Account Types

1. Private label point-of-sale credit products for retail goods or services up to $50,000

Finance the following with direct remittance to provider

2. Postage

3. Insurance Premiums

4. Purchase or Lease of Equipment

Unless……

It is a transaction account available for receipt or remit payments from 3rd

parties

Cash refund possibility

Co-branded with major credit card association


Screening of Beneficial Owners

Q. Are financial institutions required to comply with the

OFAC regulations with respect to beneficial ownership

information?

A. Yes.

Q. Do financial institutions now have additional obligations

under Section 314(a) Information Sharing for beneficial

ownership information?

A. No, the regulation implementing section 314(a) does

not require the reporting of beneficial ownership

information associated with an account or transaction

matching a named subject in a 314(a) request.


BSA/AML Examinations Leading Up To

May 18, 2018

Ask about your implementation plans to see

if you are on-track to comply

Management information systems ready?

Policy & Procedures ready?

Training effort ready?

Evaluate any early adoption efforts and

provide feedback.

Assess your due diligence processes using

existing guidelines.


Regulatory Guidance Resources

The Final CDD/Beneficial Rule

Fed Register Document Number 2016-10567

FIN-2016-G003 7/19/2016

FAQ Regarding Customer Due Diligence Requirements for

Financial Institutions

FIN-2010-G001 3/5/2010

Interagency Guidance on Beneficial Ownership

2014 FFIEC BSA/AML Examination Manual

Appendix K: Customer Risk vs. Due Diligence & Suspicious Activity

Monitoring


Questions

FinCEN Resource Center: 1(800)-767-2825

or [email protected]

Email Primary Federal Regulator

FDIC - San Francisco Region Contact:

Special Activities Case Managers

• Bryan Wampler: [email protected]

• Edmund Wong: [email protected]

mailto:[email protected]



customer due diligence/beneficial ownership … conference/cox__cdd_final...demonstrates us...

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