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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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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%.
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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.
FEDERAL DEPOSIT INSURANCE CORPORATION
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
FEDERAL DEPOSIT INSURANCE CORPORATION
Questions
FinCEN Resource Center: 1(800)-767-2825
Email Primary Federal Regulator
FDIC - San Francisco Region Contact:
Special Activities Case Managers
• Bryan Wampler: [email protected]
• Edmund Wong: [email protected]