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.
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.”