FinCEN Proposes Enhancements to Bank CDD Requirements

You may or may not remember that back in February 2012, FinCEN started soliciting comments regarding how banks adhered to the Customer Due Diligence (CDD) requirements within their Bank Secrecy Act (BSA) Program. Well, they have finally issued a Notice of Proposed Rulemaking (NPRM) to amend existing BSA regulations. FinCEN has determined that more explicit rules for banks with respect to CDD are necessary to clarify and strengthen CDD within the BSA administration.

For FinCEN, the key elements of CDD include:

1. Identifying and verifying the identity of customers;

2. Identifying and verifying the identity of beneficial owners of legal entity customers (i.e., the natural persons who own or control legal entities);

3. Understanding the nature and purpose of customer relationships; and,

4. Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions. Collectively, these elements comprise the minimum standard of CDD, which FinCEN believes is fundamental to an effective AML program.

Accordingly, this NPRM proposes to amend FinCEN’s existing rules so that each of these pillars is explicitly referenced in a corresponding requirement within FinCEN’s program rules. The first element, identifying and verifying the identity of customers, is already included in the existing regulatory requirement to have a Customer Identification Program (CIP). Given this fact, FinCEN is addressing the need to have explicit requirements with respect to the three remaining elements via two rule changes:

1. FinCEN is addressing the need to collect beneficial owner information on the natural persons behind legal entities by proposing a new separate requirement to identify and verify the beneficial owners of legal entity customers, subject to certain exemptions; and,

2. FinCEN is proposing to add explicit CDD requirements with respect to understanding the nature and purpose of customer relationships and conducting ongoing monitoring as components in each covered financial institution’s core Anti-Money Laundering (AML) program requirements.

We’ll give the proposal a light read and when the final rule is released, we’ll research it thoroughly and give you a full understanding via our newsletter and seminars.


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