This is a reminder that May 11, 2018 is the deadline for implementing new Financial Crimes Enforcement Network (FinCEN) requirements under the Bank Secrecy Act. The requirements apply to a wide swathe of financial institutions, including securities broker-dealers, banks, mutual funds, and futures commission merchants and introducing brokers in commodities. These enhancements to anti-money laundering programs (AML) are often referred to as “Customer Due Diligence” (CDD) requirements.1
FinCEN explained the focus of the new rules:
“Covered financial institutions are not presently required to know the identity of the individuals who own or control their legal entity customers (also known as beneficial owners). This enables criminals, kleptocrats, and others looking to hide ill-gotten proceeds to access the financial system anonymously. The beneficial ownership requirement will address this weakness and provide information that will assist law enforcement in financial investigations, help prevent evasion of targeted financial sanctions, improve the ability of financial institutions to assess risk, facilitate tax compliance, and advance U.S. compliance with international standards and commitments.”2
The rules enhance the types of information that covered financial institutions must collect regarding the identity of individuals (i.e., beneficial owners) who own or control their legal entity customers, such as corporations, limited liability companies, and partnerships, unless the entity is excluded. The purpose of collecting this and other information is to enable the institution to understand the nature and purpose of the customer relationship and develop a customer risk profile. That information, in turn, would be incorporated into the institution’s monitoring of customer activity for suspicious activity that must be reported to FinCEN.
The required information must be obtained at the time that a new account is opened on or after the CDD compliance date, and the information can be collected using a standard certification form or by any other means that complies with the substantive requirements of this obligation. Moreover, the institution must update its information relating to existing customers if the institution detects information (including a change in beneficial ownership information) about the customer in the course of its normal monitoring that is relevant to assessing or reevaluating the risk posed by the customer.
Broker-dealers also should be aware that Financial Regulatory Authority (FINRA) rules continue to apply to its members. Specifically, FINRA Rule 3310 governing AML programs requires members to update their AML Programs to comply with the CDD requirements by May 11, 2018.3
Please contact Larry Bergmann or your regular Murphy & McGonigle contact with any questions.
This communication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Portions may contain attorney advertising under the rules of some states.
1 Department of the Treasury, Financial Crimes Enforcement Network, “Customer due diligence requirements for financial institutions” (May 2, 2016), 81 FR 29398, https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-10567.pdf.
2 Id. at 29398.
3 See FINRA, Regulatory Notice 17-40 (November 11, 2017), http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-40.pdf.