Do You Know Who Your Beneficial Owner Is?

May 13, 2016 at 9:02 am Leave a comment

We all know that when you open an account, you have an obligation to identify the account holder and understand enough about that person so that you can identify suspicious activity.  For several years now, FinCEN has expressed concern that financial institutions don’t do enough to identify who really owns and benefits from accounts for businesses and certain kinds of trusts.  So, earlier this week it published final regulations that will require financial institutions to identify the beneficial owners of certain types of accounts, as well as the individuals who control them.

The general idea of the regulation is that when a financial institution opens an account for a corporation or LLC, as part of its customer identification procedures it must identify the beneficial owner(s) of the business – those who own at least a 25% stake – as well as a single individual who exercises legal control of the entity, such as an executive officer or senior manager.

Don’t panic.  The regulation comes with a form that can be used to gather the information from the person opening the account and you can generally rely on that person to provide the information.  In other words FInCen’s goal is not to require that every financial institution have a staff responsible for verifying a company’s structure.  Plus these requirements only apply to accounts for so-called “legal entities.”  Legal entity customers are defined as “a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.”

In addition, there are numerous exceptions to this definition outlined in the regulation and its preamble.  For instance, the preamble explained that accounts opened for unincorporated associations do not qualify as legal entities.  Generally, most trusts do not have to be filed with the state and therefore are also not covered by this regulation.  As for those of you with Interest On Lawyer Trust Accounts (IOLTA), which you only recently were authorized to offer, the preamble explains that your requirements under this regulation are satisfied so long as you perform customer due diligence on the intermediary (i.e. the lawyer opening the account).

None of this is to minimize the importance of this new requirement.  This new regulation will require new policies and procedures.  In addition, there may well be scenarios under which the amount of cash being funneled between a beneficial owner and a corporation necessitate the filing of a Suspicious Activity Report (SAR).  The rule takes effect in July, but compliance is not required until 2018.

Some Good News

In a speech yesterday, newly installed NCUA Board Chairman Rick Metsger committed to thoroughly reviewing the agency’s current exam cycle.  As a first step, he announced that NCUA would be eliminating the requirement that credit unions with $250 million or more in assets be examined each calendar year.  In a press release, he described this mandate as neither effective nor efficient.

In the finest tradition of newscasters everywhere, who always end Friday newscasts on a happy note, I’m signing off.  Have a great weekend.

Entry filed under: Compliance, General, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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