With the implementation of the new Beneficial Ownership Rule on May 11, 2018, the Financial Crimes Enforcement Network (FinCEN) required all covered financial institutions to collect and verify from specific non-exempt legal entities information about the beneficial owners of the entity at the time in which the account is opened. This rule has now been in effect for approximately eighteen months and we have found a few common misconceptions and mistakes when testing for compliance with the rule. Below are some FAQs based on our sampling in according with this rule:
- When do the Beneficial Ownership Certifications have to be completed?
- Section 1010.230 makes it clear that Beneficial Ownership certifications must be completed at the time of account opening. Financial Institutions are reminded to ensure that the certifications are both signed and dated since the burden of proof is on the customer to certify that the information that they are providing is correct. The date on the form will evidence that the certification was completed at the time the account was opened.
- Is the financial institution required to complete both the ownership and control prongs if both individuals are the same person?
- Yes, FinCEN expects that the Bank complete both the ownership prong and control prong even if the individual beneficial owner is the same person.
- What if the covered entity is owned (25% or more) by a legal entity?
- In this case, it is the financial institutions responsibility to “find a heartbeat”. In circumstances where this arises the Bank will be required to go through the layers of corporate ownership until they find an individual and if through indirect ownership, the individual owns 25% or more of the covered entity then they should be identified as a beneficial owner. Please see FAQ Question #3 of link 1 below.
- What are some common policy exceptions in relation to Beneficial Ownership?
- Some of the common areas that are found to be incomplete are that financial institutions’ policies do not specify that non-profit organizations and pooled investment vehicles are only subject to the control prong requirement of the rule. Further, banks should ensure that written risk-based procedures for updating Beneficial Ownership information are in place (for example: existing customer opening new accounts, renewing a loan (if any underwriting occurs), or if the Bank has knowledge that a change has occurred in the covered entity).
- What is required for Non-Profit entities?
- For non-profit entities, FinCEN has determined to exclude all non-profit entities (tax-exempt or not) from the ownership prong of the requirement. However, the requirement to identify an individual for the control prong is still present for non-profit entities and should be obtained.
For additional guidance / FAQs in relation to the Beneficial Ownership Rule, please use the following links:
1. FinCEN “Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions
2. FinCEN “Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions” p.2
3. The full Beneficial Ownership Rule is Available: