3 Financial institutions covered by the rule include national banks, federal savings associations, and federal branches and agencies of foreign banks, among other financial institutions. See 77 FR 13046 (March 5, 2012) (Advance Notice of Proposed Rulemaking) and 79 FR 45151 (Aug. 4, 2014) (Notice of Proposed Rulemaking). 17. Under 31 CFR 1010.230, financial institutions are required to establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of new accounts opened by legal entity customers and to include such procedures in their AML programs. All banks, including those not subject to Federal supervision, are already required to file CTRs and SARs, which necessarily requires a bank to establish a process to detect unusual activity. Learn more here. 6. 67 FR at 21113. Approximately 12 non-federally insured state-chartered banks and savings and loan or building and loan associations and 29 international banking entities depository institutions will be required to implement CIP requirements as a result of this Final Rule. Even banks not subject to these state regulatory requirements must develop such policies and procedures to properly function and comply with their BSA obligations and state banking regulations. For purposes of this paragraph, customer information shall include information regarding the beneficial owners of legal entity customers (as defined in 1010.230 of this chapter); and. The recently filed amendments to FINRA Rule 3310 incorporate into the rule this ongoing customer due diligence requirement to conform the rule to the CDD Rule and aid member firms in complying with the CDD Rule's requirements. Banks lacking a Federal functional regulator, therefore, will have 180 days from the day the Final Rule is published to be in compliance. The 2020 FAQs follow earlier FAQs from FinCEN in July 2016 and April 2018, and provide additional detail on conducting due diligence, developing customer risk ratings, and updating customer information. The purpose of the temporary deferral was to give FinCEN and Treasury time to continue to study the money laundering risks posed by such financial institutions in order to develop appropriate AML program requirements. Although this higher threshold would reduce the maximum number of individuals whose identity would need to be verified from five to three, thus reducing marginally the onboarding time, this change would not impact the training or IT costs and, therefore, would not substantially reduce the overall costs of the rule and also would provide less useful information. the current document as it appeared on Public Inspection on [14] A legal entity customer is 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." 31 U.S.C. 34.See 31 CFR 1010.230(b)(1); CDD Rule Release at 29405. 21. 307. b. Redesignating paragraph (c) as paragraph (b). If you are using public inspection listings for legal research, you For purposes of regulatory consistency, and protection against the systemic vulnerability discussed above in connection with AML programs, FinCEN believes that this requirement should apply to non-federally regulated banks as well. Estimated Annual Records: 567 AML programs. The Federal Register The Daily Journal of the United States Government Rule Financial Crimes Enforcement Network; Customer Identification Programs, Anti-Money Laundering Programs, and Beneficial Ownership Requirements for Banks Lacking a Federal Functional Regulator A Rule by the Treasury Department on 09/15/2020 Document Details Printed version: for better understanding how a document is structured but This site displays a prototype of a Web 2.0 version of the daily See CDD Rule Release at 29410. Even banks not subject to these state regulatory requirements must develop such policies and procedures to properly function and comply with their BSA obligations and state banking regulations. The CDD Rule has four core requirements. FinCEN expects that uniform regulatory requirements for all banks will reduce the opportunity for criminals to seek out and exploit banks subject to less rigorous AML requirements. The customer risk profile refers to information gathered about a customer to form the baseline against which customer activity is assessed for suspicious transaction reporting.16 Information relevant to understanding the nature and purpose of the customer relationship may be self-evident and, depending on the facts and circumstances, may include such information as the type of customer, account or service offered, and the customer's income, net worth, domicile, or principal occupation or business, as well as, in the case of existing customers, the customer's history of activity.17 The CDD Rule also does not prescribe a particular form of the customer risk profile.18 Instead, the CDD Rule states that depending on the firm and the nature of its business, a customer risk profile may consist of individualized risk scoring, placement of customers into risk categories or another means of assessing customer risk that allows firms to understand the risk posed by the customer and to demonstrate that understanding.19, The CDD Rule also addresses the interplay of understanding the nature and purpose of customer relationships with the ongoing monitoring obligation discussed below. One thousand one hundred thirty four (1,134) burden hours will be added to this control number as a result of this Final Rule (32,200 + 1,134 = 33,334). Recording Information Required To Identify and Verify New Customers, 3. Joint Fact Sheet on Bank Secrecy Act Due Diligence Requirements for Charities and Nonprofit Organizations Joint fact sheet to provide clarity on how to apply a risk-based approach to meeting the customer due diligence (CDD) requirements contained in FinCEN's 2016 CDD Final Rule when providing services to charities and other non-profit . For example, FinCEN regulations require all banks, regardless of whether they have a Federal functional regulator, to file currency transaction reports (CTRs) and suspicious activity reports (SARs), as well as to make and maintain certain records. There were no objections to this general formulation, and FinCEN is removing the definition as proposed. The Interim Final Rule stated that an institution regulated by a Federal functional regulator shall be deemed to satisfy the requirements of 31 U.S.C. On July 19, 2016, FinCEN published Frequently Asked Questions on the CDD Rule. All financial institutions are required to document their AML programs and are permitted to use the method most suitable to their requirements. FinCEN did not propose any amendments to the definition of financial institution, because the amendments proposed in the NPRM would not impact how that term is defined in 31 CFR 1010.100(t). In 1987, Federal banking regulators issued regulations requiring federally insured depository institutions and credit unions to have anti-money laundering programs to assure and monitor compliance with the requirements of subchapter II of chapter 53 of Title 31, United States Code. Final RuleProcedures for Monitoring Bank Secrecy Act Compliance, 52 FR 2858 (Jan. 27, 1987). In Question 3, FinCEN explains that the CDD Rule does not require financial institutions to update customer information on a continuous or periodic schedule, though they may decide to do so on a risk basis. 12.See CDD Rule Release at 29420; 31 CFR 1023.210. 4 The term "legal entity customer" means a corporation, limited liability company, or other entity 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. company must also report its TIN or, if a TIN has not yet been issued, a Dun & Bradstreet number or legal entity identifier. See 31 CFR 1010.605(e)(1) (covered financial institution); 31 CFR 1010.610 (correspondent accounts); 31 CFR 1010.620 (private banking accounts). 40. [12] In addition to the general due diligence requirements, which apply to all correspondent accounts for non-U.S. persons, section 5318(i)(2) of the BSA specifies additional standards for correspondent accounts maintained for certain foreign banks. Estimated Annual Burden Hours: 1,134 hours.[38]. Section 1020.210 is revised to read as follows: (a) Anti-money laundering program requirements for banks regulated by a Federal functional regulator, including banks, savings associations, and credit unions. Customer identification program requirements for banks. Although this is a new requirement for banks lacking a Federal functional regulator, they are already obligated to comply with a number of BSA regulations and state banking regulations. This is somewhat in tension with FinCENs statement in the preamble to the CDD Rule, that risk profiles in certain cases can be based on categories of customers or risk categories, though the 2020 FAQs appear to allow such an approach at least where a financial institution concludes that a customers risk profile is low and, accordingly, that additional information is not needed. PDF. Banks lacking a Federal functional regulator are currently required to comply with many existing requirements under the BSA, including the requirements to file CTRs and SARs, which necessarily require a bank to establish a process to detect unusual activity. Additionally, FinCEN is authorized to impose anti-money laundering (AML) program requirements for financial institutions.[4]. The following information describes the effect of certain previous rulemakings on banks, and specifically on banks lacking a Federal functional regulator. Questions concerning this Notice should be directed to: On May 11, 2016, FinCEN, the bureau of the Department of the Treasury responsible for administering the Bank Secrecy Act2 (BSA) and its implementing regulations, issued the CDD Rule3 to clarify and strengthen customer due diligence for covered financial institutions,4 including broker-dealers. All Rights Reserved. 12 U.S.C. FinCEN intends to issue three sets of rulemakings to implement the requirements of Section 6403: A rulemaking to implement the beneficial ownership information reporting requirements, a second to implement the statute's protocols for access to and disclosure of beneficial ownership information, and a third to revise the existing CDD Rule . [1] FinCEN proposed amending the title for this section to reflect that all banks, regardless of whether they are subject to Federal regulation and oversight, are required to establish and implement AML programs. The CDD Rule requires covered financial institutions (CFI) to establish and maintain written procedures that are reasonably designed to identify and verify the beneficial owners of legal entity customers. Each document posted on the site includes a link to the Paragraph 1020.210(b)(2) requires banks that lack a Federal functional regulator to establish and implement AML programs under the specified minimum standards. FinCEN proposed amending section 1010.205 to reflect the removal of: (1) The exemption for private bankers (paragraph 1010.205(b)(1)(vi)); (2) the broader exemption for banks that lack a Federal functional regulator (paragraph 1010.205(b)(2)); and (3) the exemption for persons subject to supervision by a state banking authority (paragraph 1010.205(b)(3)). For complete information about, and access to, our official publications [34], To minimize burden to covered financial institutions, which would apply to banks covered under this Final Rule, FinCEN did exempt such financial institutions from the beneficial ownership requirements in connection with legal entity customers opening certain low risk accounts.[35]. 14 . FinCEN proposed amending the title for this section to reflect that, going forward, CIP requirements would apply to all banks. Were FinCEN to exempt small entities from this requirement, those entities would potentially be at greater risk of abuse by criminals, terrorists, and other bad actors and would expose the U.S. financial system to money laundering, terrorist financing, proliferation financing, and other serious illicit finance threats. If neither is available, acceptable substitutes may include an Army Post Office Rather, financial institutions must update customer information when they become aware, through normal monitoring, of a change in customer information that is relevant to assessing the risk posed by the customer. FinCEN's CDD Rule does not change the requirements of FINRA Rule 3310, and member firms must continue to comply with its requirements.11 However, FinCEN's CDD Rule amends the minimum statutory requirements for member firms' AML programs by requiring such programs to include risk-based procedures for conducting ongoing customer due diligence.12 This ongoing customer due diligence element, or "fifth pillar" required for AML programs, includes: (1) understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and (2) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.13 As stated in the CDD Rule, these provisions are not new and merely codify existing expectations for firms to adequately identify and report suspicious transactions as required under the BSA and encapsulate practices generally undertaken already by securities firms to know and understand their customers.14 However, to the extent that these elements, which are briefly summarized below, are not already included in member firms' AML programs, the CDD Rule requires member firms to update their AML programs to explicitly incorporate them. In addition, banks that lack a Federal functional regulator are required to obtain approval of their AML program by their board of directors, or an equivalent governing body. electronic version on GPOs govinfo.gov. 30. The bank shall make a copy of its anti-money laundering program available to the Financial Crimes Enforcement Network or its designee upon request. Attorney Advertising Prior results do not guarantee a similar outcome. This legislative framework is commonly referred to as the Bank Secrecy Act Start Printed Page 57130(BSA). On November 21, 2017, FINRA published Regulatory Notice 17-40 to provide guidance to member firms regarding their obligations under FINRA Rule 3310 in light of the adoption of FinCEN's CDD Rule.6 In addition, the Notice summarized the CDD Rule's impact on member firms, including the ongoing customer due diligence requirement, or "fifth pillar," required for member firms' AML programs. The comment period on the NPRM ended on October 24, 2016. and services, go to Reg. 6 The Rule codified FinCEN's existing regulatory expectations to conduct sufficient due diligence on a customer to understand the nature and purpose of the customer relationship. The institution must also conduct enhanced Start Printed Page 57131scrutiny of private banking accounts requested or maintained for, or on behalf of, senior foreign political figures (which includes family members or close associates). 44. 5318(h), 12 U.S.C. See Final RuleTransfer and Reorganization of Bank Secrecy Act Regulations, 75 FR 65806 (Oct. 26, 2010).
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