On April 3, 2018, the Financial Crimes Enforcement Network (FinCEN) issued new frequently asked questions (FAQs) regarding its customer due diligence rule (CDD Rule).
The CDD Rule applies to banks, broker-dealers in securities, mutual funds, futures commission merchants and introducing brokers in commodities (collectively, covered financial institutions or CFIs).
The CDD Rule includes four core elements of customer due diligence, each of which should be included in the anti-money-laundering (AML) program of a CFI: (1) customer identification and verification, (2) beneficial ownership identification and verification, (3) understanding the nature and purpose of customer relationships to develop a customer risk profile and (4) ongoing monitoring for reporting of suspicious transactions and, on a risk basis, maintaining and updating customer information. The second element — the beneficial ownership requirement — is new. FinCEN has described the other elements as preexisting AML program requirements for CFIs, although the third and fourth prongs were, at most, implicit requirements.
FinCEN issued new FAQs on the CDD Rule on July 19, 2016. These FAQs are timely because the May 11, 2018 compliance date for the CDD rule is fast approaching.
Here, we summarize several key takeaways regarding the beneficial owner requirement from the new FAQs.
On March 15, 2017, the Office of the Comptroller of the Currency published a draft supplement to the Comptroller’s Licensing Manual that sets forth details of the OCC’s proposal to accept applications from financial technology companies for special purpose national bank charters. The OCC’s guidance makes clear that it intends to hold fintech companies to the same chartering standards as entities seeking a traditional national bank charter and that there will be no “light-touch” supervision of chartered fintechs. While there may be debate over whether the guidance provides a viable alternative for organizing fintech firms, the OCC’s move signals their desire to modernize their licensing framework to keep pace with an evolving financial services industry. The OCC invites comment on the draft supplement through close of business on April 14, 2017.
The Office of the Comptroller of the Currency (OCC) has confirmed its intention to explore issuing limited-purpose national bank charters to fintech firms engaged in banking activities — commonly called the “fintech charter.” Earlier this year, the OCC had signaled this possibility. Now, through the release of a policy paper titled “Exploring Special Purpose National Bank Charters for Fintech Companies” (FinTech Paper) and a speech by the Comptroller on Dec. 2, the OCC has taken a more formal step.
On September 13, 2016, the New York State Department of Financial Services (“NYDFS”) proposed regulations outlining minimum requirements for NYDFS-regulated entities to address cybersecurity risk (“Proposed Regulations”). The NYDFS regulates entities and products that are subject to New York insurance, banking and financial services laws. Because the scope of the Proposed Regulations includes any entity “operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law,” the Proposed Regulations will cover a broad range of entities in the banking, insurance and financial services industries, including insurance producers and premium finance companies.