FinCEN Final CDD Rule… For Now

FinCEN CDD Rule is the shorthand for Customer Due Diligence Requirements for Financial Institutions, which FIs were supposed to have implemented by May 11, 2018.  The requirement is to obtain beneficial ownership information, financial institutions will have to identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity, among others.  At the time of this publication, May 16, 2018, the requirement also includes the collection of beneficial ownership information during product or service renewals, such as loan renewals and certificates of deposit rollovers. FIN-2018-G001 FAQ Regarding CDD Requirement for FIs, pages 9 and 10.  This is the most controversial definition of a new product or service.  Practically speaking, it means a short term 1-month CD will trigger the need to collect a certification of beneficial ownership, which also includes the work of due diligence to support the certification.  There is no provision to apply this on a risk basis, which means the pensioner in Wichita and a Middle Eastern correspondent bank will be treated the same for the purposes of this requirement.  Obviously, FIs as awaiting any guidance on the enforcement strategy from regulators.

Update:  On May 16, 2018, at around 6pm, FinCEN delayed the enforcement of this rule. Due to the unexpected interpretation by FinCEN, FIs were not ready to consider rollovers as purchase of a new financial product.  Realizing that they provided guide far too late for FIs to comply, FinCEN is providing a 90-day limited exceptive relief.  Also, as, what seems to be, a jab at FIs sounding the alarm, FinCEN added:

Consistent with the definition of “account” in the Customer Identification Program
(CIP) rules and subsequent interagency guidance, each time a loan is renewed or
a certificate of deposit is rolled over, the bank establishes another formal banking
relationship and a new account is created…

FinCEN understands that some covered institutions have not treated such rollovers or renewals as new accounts and have established automatic processes to continue the banking relationship with the customer.

 

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