FinCEN CDD Rule, sometimes called the Fifth Pillar of AML, became effective on May 11, 2018.
The CDD Rule has four core requirements. It requires covered financial institutions to establish and maintain written policies and procedures that are reasonably designed to (1) identify and verify the identity of customers; (2) identify and verify the identity of the beneficial owners of companies opening accounts; (3) understand the nature and purpose of customer relationships to develop customer risk profiles; and (4) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. – FinCEN New Release
There were two exemptions. The first was on May 11, 2018, the guts of which is as follows:
The Beneficial Ownership Rule currently exempts covered financial institutions from the requirements to identify and verify the identity of the beneficial owner of legal entity customers at account opening to the extent that the legal entity customer opens the account for the purpose of financing insurance premiums and for which payments are remitted directly by the financial institution to the insurance provider or broker unless there is a possibility of cash refunds. This ruling provides exceptive relief to covered financial institutions from the requirements to collect and verify the beneficial owner of a legal entity customer opening such premium financing account when there is a possibility of a cash refund.
The second was a temporary relief announced on May 16, 2018, the guts of that is as follows:
… up to and including August 9, 2018… exceptive relief to covered financial institutions from the obligations of the Beneficial Ownership Requirements for Legal Entity Customers (31 CFR § 1010.230) (Beneficial Ownership Rule) with respect to certain financial products and services that automatically rollover or renew (i.e., certificate of deposit (CD) or loan accounts) and were established before the Beneficial Ownership Rule’s Applicability Date, May 11, 2018.
At the time of this writing, many large banks went through a review of the rule implementation recently, are in review, or will soon be in review by the Office of the Comptroller of the Currency, but these are not a coordinated horizontal industry-wide review. Banks are eager to find out how well they have done and how practical the reviews will be. The second relief is one of great concern for all banks, not just the big banks, because many products have automatic rollover or renewal, for which banks do not normally consider to be a new financial product or even a new account.