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.