What is it and How Does it Apply to My Company?
Recent changes to federal banking regulations require all U.S. financial institutions to collect information regarding the beneficial ownership of our legal entity customers. At account opening, and at times during the life of the account, the bank will ask you to provide identifying information for all natural persons who, directly or indirectly, own 25 percent or more of the equity interests in the legal entity. In certain situations, we may ask for identifying information below 25 percent. We will also request identifying information for a controlling person, such as an executive officer or senior manager, or another individual who regularly performs similar functions.
These changes take effect May 11, 2018.
We understand this may be disruptive. Our desire is to have our clients be as prepared as possible at new account opening to avoid any delays. To assist with this, we have created a paper form that your team can use to collect the required information prior to coming into the branch.
In May 2016, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed and Congress approved the gathering of certain beneficial owner information as part of explicit Customer Due Diligence (CDD) requirements under the BSA.
- The rule requires all Financial Institutions (FIs) subject to the BSA to collect from legal entity (commercial) customers beneficial ownership information (BOI) and to identify those owners using standard Customer Identification Program (CIP) procedures.
- Consistent with existing customer identification processes, FIs must obtain, reasonably verify, and document BOI collected for the beneficial owners of legal entity customers.
FinCEN asserts this change to CDD requirements will advance the purpose of the BSA as follows:
- Enhance the ability of law enforcement to access beneficial ownership information;
- Increase the ability of stakeholders to identify assets associated with criminals and terrorists, strengthening sanctions programs;
- Assist FIs to assess and mitigate potential risks and comply with legal requirements;
- Facilitate tax compliance, especially as it relates to Foreign Account Tax Compliance Act (FATCA) and reciprocity with other jurisdictions; and
- Promote consistency in implementing and enforcing CDD expectations.
All new legal entity (commercial) customers and their beneficial owners.
The definition of “beneficial owner” has two components or “prongs” and can be applied on an either/or basis:
- Ownership prong: Each individual, if any, who owns, directly or indirectly, 25 percent or more of the equity interests of the legal entity. Note: In certain situations, the bank may obtain BOI at lower equity thresholds.
- Control prong: An individual with significant responsibility to control, manage or direct a legal entity customer, such as an executive officer, senior manager or individual who performs similar functions.
Note: FinCEN recognizes that FIs lack an ability to verify the status of an individual as a beneficial owner. As such, FIs are permitted to rely on customer representations and certification to determine the beneficial owners of a legal entity customer.
The rule applies to all types of legal entity business types registered by a state registering authority such as incorporations, limited liability companies, partnerships and others. A legal entity does not include natural persons, personal trusts, sole proprietorships and unincorporated associations.
The rule also does not apply to the following:
- An issuer of securities under SEC rules;
- Any majority owned domestic subsidiary of a company listed on a U.S. stock exchange;
- An investment company;
- A registered investment adviser;
- An exchange or clearing company or other entity registered with the SEC;
- Certain CFTC registered entities;
- A public accounting firm; or
- A charity or nonprofit entity (subject to the control prong only).
The mandatory compliance date for all FIs is May 11, 2018.