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Volume XII, Number 342

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Financial Crimes Enforcement Network to Financial Institutions: You Must Seek Beneficial Ownership Information

On May 5, the Financial Crimes Enforcement Network (FinCEN) announced final rules under the Bank Secrecy Act that enhance the customer due diligence obligations of banks, broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities (collectively, Covered Financial Institutions). The final rules will become effective 60 days after publication in the Federal Register (publication expected on May 11). The new rules, however, provide for a two-year compliance period, meaning that affected financial institutions will have until May 11, 2018 to come into full compliance.

Summary

We expect to publish a more comprehensive overview of the final rules in the coming days. In the meantime, we note that the final rules require Covered Financial Institutions to obtain beneficial ownership information of all legal entity customers (other than certain exempt accounts) for all persons who beneficially own 25% or more of the legal entity customer. Covered Financial Institutions can comply by either obtaining the required information on a standard certification form or by any other means that satisfy the requirements of the rule.

FinCEN also amended the anti-money laundering program rules applicable to Covered Financial Institutions to explicitly include risk-based procedures for conducting ongoing customer due diligence to better allow for understanding the nature and purpose of customer relationships in developing customer risk profiles.

Impact on Registered Investment Advisers

Although registered investment advisers (RIAs) are not included as Covered Financial Institutions at this time, we expect that FinCEN will soon propose rules that would apply to RIAs as part of FinCEN’s efforts to bring such entities within its regulatory umbrella. For a discussion of FinCEN’s proposed AML rules for RIAs, please see our September 2015 White Paper “AML Requirements Proposed for SEC Registered Advisers.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VI, Number 130
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About this Author

Ignacio Sandoval, Morgan Lewis, Securities lawyer
Associate

A member of the firm’s securities industry practice, Ignacio A. Sandoval advises broker-dealers on matters relating to their obligations under federal securities laws and self-regulatory organization rules. Prior to joining Morgan Lewis, he was a special counsel in the Office of Chief Counsel in the SEC’s Division of Trading and Markets. Ignacio’s SEC experience includes matters involving domestic and foreign broker-dealer registration matters, anti-money laundering obligations, alternative trading systems, and high-frequency traders.

202-739-5201
Charles Horn, financial services attorney, Morgan Lewis
Partner

Charles M. Horn is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Horn focuses his practice on regulatory and transactional matters, primarily in the areas of banking and financial services. He works on behalf of domestic and global financial institutions of all sizes on regulatory, supervisory, enforcement and compliance matters before all major federal financial institutions regulatory agencies, and leading state financial regulatory agencies.

202-739-5951
Melissa R.H Hall, Financial services attorney, Morgan Lewis
Of counsel

Melissa R. H. Hall represents US and overseas banks, nonbank financial services companies, investors in financial services, and technology companies in regulatory and corporate matters. She advises them on a wide range of state and federal financial regulatory laws and regulations. She provides counsel on financial regulatory compliance and enforcement, including state and federal licensing requirements, consumer financial products and compliance, payment systems, corporate and transactional matters, financial institution investment and acquisition, and the development...

202-739-5883
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