FinCEN Issues FAQs Pertaining to their Final Rule Under the Bank Secrecy Act

On May 11, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule on customer due diligence (the “CDD Rule”).  This rule addresses new and existing due diligence requirements for Covered Financial Institutions (as defined in the rule), which include banks, broker-dealers, mutual funds, future commission merchants and introducing brokers in commodities.

Prior to the issuance of the CDD Rule, Covered Financial Institutions were not required to know the identity of the beneficial owners of their legal entity clients.  As a result, criminals who wished to hide any ill-gotten gains had anonymous access to the financial system.  However, now with the CDD Rule in place, this gap is being addressed and according to FinCEN, will “assist law enforcement in financial investigations, help prevent evasion of targeted financial sanctions, improve the ability of financial institutions to assess risk, facilitate tax compliance, and advance U.S. compliance with international standards and commitments.”

The Final Rule outlines four components necessary for successful anti-money laundering (AML) programs of Covered Financial Institutions:

  • Identify and verify the identity of customers
  • Identify and verify the identity of beneficial owners of legal entity customers, subject to certain exceptions
  • Understand the nature and purpose of customer relationships
  • Continuously monitor and report suspicious transactions and, on a risk basis, maintain and update customer information

To help Covered Financial Institutions better understand the customer identification requirements of the CDD Rule, FinCEN recently published a list of FAQs.  This list discusses such topics as which financial institutions are covered under the rule, the required identification and verification procedures, what information Covered Financial Institutions need to collect and verify, the rule’s impact on the anti-money laundering (AML) program, and the deadline for financial institutions to implement the rule.

In light of the CDD rule, broker-dealers and mutual funds should take steps to ensure they are performing appropriate due diligence in collecting and verifying customer information and that policies and procedures have been updated to include the new requirements.

For information on how CCLS can assist you with identifying and meeting the requirements of The CDD Rule, please contact us at info@corecls.com or (619) 278-0020.