May 27, 2020

May 26, 2020

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FinCEN FAQs Clarify Customer Due Diligence Regulations

Two months after amending its customer due diligence (CDD) regulations requiring financial institutions to identify and verify beneficial owners of their legal entity customers (as reported), FinCEN has issued frequently asked questions (FAQs) designed to improve understanding and facilitate compliance.

Legal and compliance officers of covered institutions should take special note that the FAQs:

  • Divide the amended regulations into digestible concepts that unpack and seek to simplify the layered requirements;

  • Present questions in an intuitive order, beginning with purpose and jurisdiction, continuing with procedural implementation and covered entities, and concluding with regulatory interactions and effective dates; and

  • Supply concrete details to clarify core definitions and mandated procedures.

Removing any cloud of doubt about coverage, the FAQs specify that, although the amended regulations do not target all financial institutions, they do apply to all federally regulated banks and federally insured credit unions, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities. FinCEN’s overriding concern appears to be that institutions understand the nature, purpose and beneficial owners of their legal entity customers. To that end, the FAQs provide a procedure-by-procedure blueprint for amending anti-money laundering (AML) program requirements.

After reviewing the scope of covered activities, the FAQs delineate in a bullet format the four categories of accounts and two special sets of circumstances that are exempt from the regulations. Also noteworthy is FinCEN’s attempt to concretize the list of entities that are excluded from beneficial ownership identification and verification.

Finally, the FAQs draw a clear distinction between the effective date of the amended regulations – July 11, 2016 – and the date by which institutions must be fully compliant – May 11, 2018.

Walter Donaldson of FGIS is co-author of this article. 

© 2020 Dinsmore & Shohl LLP. All rights reserved.


About this Author

Frank A Mayer III, Dinsmore, Financial Services Regulation Lawyer, Enforcement Actions Attorney

Frank A. Mayer, III is a partner and Chair of the Financial Services Regulatory & Enforcement Group (FinsReg).

Frank advises and defends regulated business enterprises with a special emphasis on financial service organizations, foreign banking organizations, U.S. insured depository institutions, non bank credit providers and mortgage loan product platforms, payment systems and related participants, directors, special board committees and officers in connection with supervisory and enforcement matters as well as mergers and acquisitions. He...

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Richard M. Berman, Dinsmore, Vendor management Lawyer, Cash Management Attorney, Philadelphia, PA

Richard is a Partner in our Corporate Department and a member of the Financial Services, Regulatory and Enforcement Group (FinsReg). In his more than 25 years of practice, he has gained extensive experience providing legal counsel and advice to national, regional and community based financial institutions as both a law firm partner and in-house counsel.

Richard’s multi-faceted legal experience, coupled with a strategic business sense, allows him to help his clients navigate the many complex legal and business issues that challenge their organizations. He routinely counsels financial services clients on a wide array of matters such as regulation, vendor management, operational matters, cash management, loss prevention and security, claims, litigation, lending and asset recovery. With special concentration on the operational side of the institution, he has assisted his clients in responding to a broad spectrum of issues arising on a daily basis, including interbank payments, internal and external fraud, customer claims, customer transactional issues, retail operations issues, bank security concerns, legal process, lending and vendor management matters. Richard also is skilled in advising financial institutions on matters involving the Uniform Commercial Code (UCC), Electronic Funds Transfer Act/Regulation E, National Automated Clearing House Association (NACHA) Rules, and Expedited Funds Availability Act/Regulation CC.

His flexible, integrated approach to addressing complex issues, transactions, claims, litigation and regulatory matters allows him to guide clients through the multi-dimensional impact of decisions including the impact upon various constituencies. Richard’s ability to assess risks from a strategic and practical view as well as his ability to communicate legal terms in a way his clients understand make him a trusted advisor. 

(215) 309-8851
Jonathan L. Levin, Dinsmore, banking issues lawyer, Charter Licensing Matters Attorney
Of Counsel

Jonathan Levin is Partner Of Counsel in our Philadelphia office and a member of the Financial Services Regulatory & Enforcement Group (FinsReg) in the Corporate Department. He focuses his practice on providing regulatory counsel to banks and financial companies.

After 21 years in private practice, he joined Bear Stearns & Co. Inc. in October 2006 as Chief Compliance Officer and Chief Regulatory Counsel of their subsidiary bank. Before joining Dinsmore, he maintained his own financial services law practice for seven years.

(610) 408-6043