Financial Institutions Advisory: FinCEN Issues Final Rule on Beneficial Ownership Reporting
DOWNLOAD PDF- Industry Alerts
Click “Subscribe Now” to get attorney insights on the latest developments in a range of services and industries.
On Friday, September 30, 2022, the Financial Crimes Enforcement Network issued its much-anticipated final rule on Beneficial Ownership Information Reporting Requirements (the “Rule”).1 The Rule implements Section 6403 of the Corporate Transparency Act, which was enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021.2 The Rule becomes effective January 1, 2024.
The Rule requires certain entities to file reports directly with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity and (2) individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. Financial institutions welcome the Rule because it removes an added layer of information collection and validation they are currently required to perform under their anti-money laundering compliance programs.
Since May 11, 2018, certain financial institutions (e.g., banks; brokers or dealers in securities; mutual funds; and futures commission merchants and introducing brokers in commodities) opening accounts for their legal entity customers are required to identify and verify the identity of beneficial owners of such customers, subject to limited exclusions and exemptions (the “CDD Rule”).3 This requirement to identify and verify beneficial owners was outlined by FinCEN in the CDD Rule as an explicit requirement of customer due diligence under FinCEN’s regulations. Prior to the CDD Rule, FinCEN’s regulations implicitly required a financial institution’s customer due diligence program to include: (1) customer identification and verification; (2) understanding the nature and purpose of customer relationships to develop a customer risk profile, and (3) ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating customer information. Each of these elements, as well as the new beneficial ownership requirement, became explicit requirements under the CDD Rule.
Therefore, with the issuance of this Rule by FinCEN, FinCEN will be taking on the responsibility of the beneficial owner information collection and verification – a task financial institutions are happy to hand over to FinCEN. However, financial institutions must continue under the current framework until FinCEN revises its regulations issued under the CDD Rule, which, pursuant to the Corporate Transparency Act, FinCEN must do within one year of the effective date of this Rule (January 1, 2025).
Therefore, with the issuance of this Rule by FinCEN, FinCEN will be playing more of a direct role with beneficial owner information collection and verification. However, financial institutions must continue under the current framework until FinCEN revises its regulations issued under the CDD Rule, which, pursuant to the Corporate Transparency Act, FinCEN must do within one year of the effective date of this Rule (January 1, 2025).
Key Financial Institution Team
Chicago |
|
Justin D. Gingerich |
Chicago |
Austin |
|
Ann Arbor |
|
Chicago |
|
Detroit |
|
Chicago |
|
Detroit |
|
Detroit |
|
Detroit |
|
Phoenix, Ann Arbor |
1 See 87 Fed. Reg. 59498 (September 30, 2022).
2 See Public Law 116-283 (January 1, 2021).
3 See 81 Fed. Reg. 29398 (May 11, 2016).
Related Practices
Recent Insights
- Webinars Reporting Requirements under the Corporate Transparency Act (CTA)
- Industry Alerts Corporate Transparency Act Questionnaire | 企業透明性法のアンケートのお知らせ
- Industry Alerts Important Notice Impacting Millions of Business Entities (A Summary of the Corporate Transparency Act)
- June 6, 2024 In the News Dickinson Wright Receives Top Rankings in 2024 Chambers USA Guide; 51 Attorneys Recognized as Leaders in their Fields
- April 25, 2024 In the News Peter Westcott Joins Dickinson Wright Toronto Office
- July 28, 2023 Video Minutes on the Matter with Joseph Silvia: Unauthorized Electronic Funds Transfers
- June 1, 2023 In the News Dickinson Wright Receives Top Rankings in 2023 Chambers USA Guide; 43 Attorneys Recognized as Leaders in their Fields
- March 2023 Industry Alerts How to Screw up a Good Thing – What the Financial Industry Should Consider in the Wake of Credit Suisse
- March 07, 2023 Industry Alerts Bank Warning: Don’t Get Charged Millions for Processing Out-of-State Garnishments Improperly