Rule detail : 28425

FinCEN Client Diligence FAQ

On Jul. 19, FinCEN issued customer due diligence FAQ for firms.

Follows FinCEN May 2016 final CDD rules, effective date of Jul. 11, 2016, see #27461.
Requires firms identify and verify identity of beneficial owner of legal entity customers.
Entity customer should identify ultimate beneficial owner, not a nominee or straw man.
Applies to federally regulated banks, credit unions, mutual funds, dealers, FCM, IBs.
Aug. 2016 NFA FAQ
In Aug. 2016, NFA issued guide for FCMs, IBs to verify beneficial owners, see #28697.
CDD Requirements
Have written procedure to identify and verify beneficial owner of legal entity customer.
identify beneficial owner of a customer, at time new account opened, unless exempt.
Have elements to verify identity of individual in customer identification program (CIP).
Amend AML program for a firm, by requiring risk-based procedures for due diligence.
Procedures include understanding nature and purpose of the customer relationships.
Conduct ongoing monitoring to identify and report suspicious transactions by client.
And on a risk-adjusted basis, firm should maintain and update customer information.
Identification Procedures
CDD procedures must be included in a financial institution’s AML compliance program.
Procedures of entity customers need not be identical to those in CIP for individuals.
May use photocopy of identification document, for document verification for entity.
Collect information on individuals who are beneficial owner of legal entity customer.
Definition of Beneficial Owner
Individual who, directly or indirectly, owns 25% or more of equity interests of entity.
And individual with significant responsibility to control, manage, direct entity customer.
Include executive or senior manager, CEO, CFO, COO, partner, president, VP, treasurer.
Entity will have between 1-5 beneficial owners, one for control and up to 4 owners.
Collection of Information
Collect information from individual opening account, who may not be beneficial owner.
Of date of birth, address and social security number, other government ID, passport.
Institution may rely upon information provided, unless a reason to question accuracy.
For new accounts opened at institution by legal entity customer on/after May 11, 2018.
Rule does not require identifying owners of existing accounts that were already open.
Exemptions and Limits
Exempts accounts at point-of-sale that provide credit for retail purchases, to $50,000.
Purchase postage, where payments are remitted directly by the financial institution.
To finance insurance premiums and for which payments directly to insurance provider.
Or finance purchase or lease of equipment with payments directly to vendor or lessor.
Exempt trade account for entity customer to make/receive payment from third party.
Legal Entity Customer
Legal entity customers include corporation, LLC, general partnership, created at State.
Includes similar entity formed under law of foreign jurisdiction that opens an account.
Also includes limited partnerships and business trust created by filing with State office.
Excludes sole proprietorship, unincorporated association, natural persons on their own.
Exempts federally regulated financial institution clients, US or State government unit.
Also exempted entity with stock listed on NY, Amex, NASDAQ, or 51% owned by such.
Exempts others entity-types, including public company, IA, BHC, insurer, and clearers.
Apr. 2018 Updated FAQ
In Apr. 2018, FinCEN issued FAQ on applying customer due diligence rule, see #42196.
May 2018 Reminder of Application
On May 11, 2018, FinCEN reminded firms that CDD rule becomes effective on this day.
In Sep. 2020, FinCEN issued final rule on CIP program for exempt banks, see #86073.

Regulators	FinCEN
Entity Types	B/D; Bank; FCM; IA; IB; Inv Co
Reference	PR, 5/11/2018; FAQ, FIN-2016-G003, 7/19/2016
Functions	AML; Anti-Bribery; Compliance; Financial; Legal; Market Conduct; Operations
Countries	United States of America
Category	AML FIU
State
Products	Banking; Commodities; Corporate; Deposits; Fund Mgt; Futures; Mutual Funds; Securities
Regions	Am
Rule Type	Guidance
Rule Date	7/19/2016
Effective Date	5/11/2018
Rule Id	28425
Linked to	N/A
Reg. Last Update	5/15/2018
Report Section	AML & Enforcement