Insights & Analyses

FinCEN clarifies customer due diligence rules as May compliance deadline looms

April 4, 2018

The Financial Crimes Enforcement Network has released new guidance Customer Due Diligence (CDD) requirements, requiring financial institutions to keep detailed records of the identities of beneficial owners of new accounts opened in the name of a legal entity.

The latest guidance enhances rules originally mandated in May of 2016. The new FAQs provide interpretive guidance with respect to the new CDD rule, and clarification around how the rule might be applied to specific scenarios.

Specifically, the new CDD rules mandate that as of May 11, 2018, covered financial institutions must “obtain, verify, and record” the identities of beneficial owners of new accounts opened in the name of legal entities. Beneficial owners are defined as either individuals who directly or indirectly own more than 25 percent equity of a legal entity, or single individuals with a “significant responsibility to control, manage, or direct a legal entity customer” (e.g. CEO, CFO, General Partner).

In other words, each legal entity will have a minimum of one, and a maximum of five, potential beneficial owners.

For the purposes of the CDD Rule, covered financial institutions include federally regulated banks and federally insured credit unions, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities. Existing accounts opened prior to the May 11, 2018 implementation deadline are also not subject to the new CDD Rule.

OWI expects that the new CDD Rule will be an area of regulatory focus for FinCEN in 2018, as new requirements are often the object of supervisory attention.