In 2016, FinCEN released a new Customer Due Diligence (CDD) rule with specific rules on Beneficial Owners. U.S. financial institutions were required to comply by May 11, 2018. We have created the outline below to help you understand the basic requirements of your organization.
FinCEN stands for the Financial Crimes Enforcement Network. It is a bureau of the U.S. Department of Treasury and is tasked with collecting and analyzing information about financial transactions to combat illegal activities such as money laundering. In 2016, FinCEN released a new Customer Due Diligence (CDD) rule with specific rules on Beneficial Owners. Financial institutions were required to comply by May 11, 2018.
Federally regulated banks and federally insured credit unions.
FinCEN released this new rule to strengthen and clarify Customer Due Diligence requirements. The rule provides explicit CDD requirements and imposes a new requirement for the FIs to identify and verify the identity of Beneficial Owners of legal entities (e.g. businesses).
Beneficial Owners are: – Any individual who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer
No, sole proprietorships and companies publicly traded on the US stock exchange are excluded from this rule. However, companies listed on foreign exchanges are not excluded.
The CDD requires institutions to establish and maintain written procedures that are reasonably designed to identify and verify the Beneficial Owners of business customers. To do this, financial institutions must implement procedures to: – Identify the Beneficial Owners of each customer at the time a new account is opened (unless the customer is otherwise excluded, or the account is exempted)
In short, organizations are required to obtain, verify, and record the identities of the Beneficial Owners of legal entity customers. This includes information like: – Name, address (residential or business), DOB, SSN
The same rules apply. The bank must collect the same information on individuals who benefit from the business, either directly or indirectly. For example, Customer applies for a bank account. Allan owns indirectly 30% of Customer’s equity interests through his direct ownership of Company A. This makes him a Beneficial Owner of Customer.
Betty is also a Beneficial Owner of Customer because she owns indirectly 20% of its equity interests through her direct ownership of Company A, plus 16 2/3% through Company B for a total of the indirect ownership interest of 36 2/3%.
Neither Carl nor Diane is a Beneficial Owner because their ownership is 16 2/3 %.
At the American Banker Digital Banking Conference, we demoed a digital business banking onboarding experience built on the Avoka Transact platform. In addition to showcasing how to create an optimal customer experience for business customers, we also showed how Avoka can help conduct KYB on businesses and identify Beneficial Owners associated with a business.
Our application experience also included the ability for the applicant to enter the email addresses of the identified Beneficial Owners. The Beneficial Owners then receive an email with a link to the application to enter their identifying information at their own convenience. In the meantime, the applicant can continue with the application and submit it.
The benefits of our solution are: