By: Kyle Davis, CRCM, CAMS
On September 7, 2018, FinCEN finalized permanent exceptive relief from the beneficial ownership requirements for certain rollover products and services. The ruling is in response to industry feedback to question 12 found in the April 3, 2018 frequently asked questions. See the FAQs here.
Question 12 defined the term “account” consistent with previously issued CIP guidance which states that each loan renewal or CD rollover establishes another formal banking relationship. Per this definition, question 12 directed institutions to collect beneficial ownership upon the first renewal or rollover after May 11, 2018. Additionally, question 12 allowed institutions to rely upon customer certification that the bank would be notified of any changes in beneficial ownership information.
After the FAQs were published, financial institutions responded that it is industry practice not to treat such rollovers and renewals as the opening of a new account. In response, on May 16, 2018, FinCEN issued a 90-day temporary and limited exceptive relief, retroactive to May 11, 2018, and which FinCEN extended an additional 30 days. Based upon discussions with stakeholders and industry personnel during the 120 days, FinCEN is providing permanent exceptive relief for these products.
The relief from the requirements of the beneficial ownership rule applies only when a legal entity customer opens a new account under the following scenarios:
The exception affects the accounts described in this ruling in two ways: by removing the obligation to collect beneficial ownership information when an account opened before May 11, 2018 rolls over or renews after May 11, 2018, as if it were a new account, and by removing that same obligation for rollovers, modifications, extensions, and renewals of such accounts opened after May 11, 2018.
There are a few important details to highlight from the ruling. FinCEN notes that current industry practice for renewing or extending these types of account relationships is generally automated and does not require an affirmative action from the customer. This narrow definition appears to eliminate the relief for instances where a business customer deposits funds to a CD during a grace period. It appears that the ruling views a deposit during a grace period as an interaction with a legal entity customer and an opportunity to obtain or re-certify the beneficial ownership information.
The ruling with regards to credit products also presents additional questions. The guidance does not define the terms underwriting and approval. These definitions are left to institution’s specific loan policies and processes. Typically, underwriting and/or approval is required for most loan renewals. Further, there are limited credit products with automatic renewal features that require no action from the customer.
However, FinCEN does provide an example of relief in the ruling with respect to credit card accounts, “the financial institution may change certain terms of a commercial line of credit or of a credit card, such as the credit limit, without requiring the affirmative assent of the customer.” Institutions may also determine that, depending on bank policy, other short-term loan extensions do not require underwriting and approval. It is recommended that institutions review their internal underwriting and approval policy and processes to determine instances, if any, where this relief would be applicable.
The final ruling can be found here.
On September 7, 2018, FinCEN finalized permanent exceptive relief from the beneficial ownership requirements for certain rollover products and services. The ruling is in response to industry feedback to question 12 found in the April 3, 2018 frequently asked questions. See the FAQs here.
Question 12 defined the term “account” consistent with previously issued CIP guidance which states that each loan renewal or CD rollover establishes another formal banking relationship. Per this definition, question 12 directed institutions to collect beneficial ownership upon the first renewal or rollover after May 11, 2018. Additionally, question 12 allowed institutions to rely upon customer certification that the bank would be notified of any changes in beneficial ownership information.
After the FAQs were published, financial institutions responded that it is industry practice not to treat such rollovers and renewals as the opening of a new account. In response, on May 16, 2018, FinCEN issued a 90-day temporary and limited exceptive relief, retroactive to May 11, 2018, and which FinCEN extended an additional 30 days. Based upon discussions with stakeholders and industry personnel during the 120 days, FinCEN is providing permanent exceptive relief for these products.
The relief from the requirements of the beneficial ownership rule applies only when a legal entity customer opens a new account under the following scenarios:
- A rollover of a certificate of deposit (CD);
- A renewal, modification, or extension of a loan (e.g., setting a later payoff date) that does not require underwriting review and approval;
- A renewal, modification, or extension of a commercial line of credit or credit card account (e.g., a later payoff date is set) that does not require underwriting review and approval; and
- A renewal of a safe deposit box rental.
The exception affects the accounts described in this ruling in two ways: by removing the obligation to collect beneficial ownership information when an account opened before May 11, 2018 rolls over or renews after May 11, 2018, as if it were a new account, and by removing that same obligation for rollovers, modifications, extensions, and renewals of such accounts opened after May 11, 2018.
There are a few important details to highlight from the ruling. FinCEN notes that current industry practice for renewing or extending these types of account relationships is generally automated and does not require an affirmative action from the customer. This narrow definition appears to eliminate the relief for instances where a business customer deposits funds to a CD during a grace period. It appears that the ruling views a deposit during a grace period as an interaction with a legal entity customer and an opportunity to obtain or re-certify the beneficial ownership information.
The ruling with regards to credit products also presents additional questions. The guidance does not define the terms underwriting and approval. These definitions are left to institution’s specific loan policies and processes. Typically, underwriting and/or approval is required for most loan renewals. Further, there are limited credit products with automatic renewal features that require no action from the customer.
However, FinCEN does provide an example of relief in the ruling with respect to credit card accounts, “the financial institution may change certain terms of a commercial line of credit or of a credit card, such as the credit limit, without requiring the affirmative assent of the customer.” Institutions may also determine that, depending on bank policy, other short-term loan extensions do not require underwriting and approval. It is recommended that institutions review their internal underwriting and approval policy and processes to determine instances, if any, where this relief would be applicable.
The final ruling can be found here.
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