September 12, 2017

Readiness Checklist for the New Beneficial Ownership Rule


In just eight months, all federally regulated banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities will be required to comply with the new Beneficial Ownership Rule issued by the Financial Crimes Enforcement Network (FinCEN) in 2016, which requires institutions to collect certified information identifying the individuals who own or control their legal entity customers.1 The Beneficial Ownership Rule is expected to have a significant impact throughout an institution's operations. To avoid business disruption and lapses in customer service, institutions should pay close attention to these requirements, ensure that the implementation process is well underway, and consider the steps outlined below.

Under the Beneficial Ownership Rule, institutions are required to obtain and verify the identity of the beneficial owners of most legal entity customers at the time a new account is opened, necessitating significant operational changes to an institutions' existing anti-money laundering (AML) programs. The Beneficial Ownership Rule, which also formalizes existing expectations of customer due diligence imposed on institutions as the "fifth pillar" of AML compliance, became effective on July 11, 2016, and has an "applicability date" of May 11, 2018.

As we work with institutions to incorporate these requirements into their daily operations, it has become apparent that the application of the Beneficial Ownership Rule's requirements is not as straightforward as expected. In particular, as compliance teams stand up enhanced AML programs to address the new requirements, compliance officers are challenged to navigate the more than one dozen circumstances where front-line employees are not required to collect beneficial ownership information. And, as expected, front lines are having trouble applying the new requirements to customer onboarding and are resistant to the concept of burdening customers so early in the customer relationship.

Although many institutions have already begun implementing changes to their compliance programs to conform to the Beneficial Ownership Rule in advance of the applicability date, there is still time to ensure your institution is positioned to comply with the new requirements and not disrupt the customer onboarding experience next May. To facilitate your institution's preparation, below is a checklist of steps institutions should consider.

  • Convene a working group comprised of representatives of compliance, affected business lines, IT, and internal audit to understand the Beneficial Ownership Rule's impact on operations and business prospects.
  • Incorporate the Beneficial Ownership Rule's requirements into the institution's AML program, policies, and business line-specific procedures.
  • Revise Know Your Customer intake procedures and forms, and incorporate FinCEN's model certification form or develop a compliant proprietary form.
  • Coordinate with your AML software vendor to ensure seamless collection and transfer of information.
  • Conduct department-specific training, including hypothetical onboarding of customers excluded from FinCEN's definition of “legal entity customer.”
  • Revise AML monitoring policies and procedures affected by the Beneficial Ownership Rule.
  • Designate a resource center to field questions from front-line employees about application of the Beneficial Ownership Rule.
  • Develop internal audit procedures tailored to the Beneficial Ownership Rule's requirements.

Institutions interested in assistance with developing their Beneficial Ownership Rule compliance program are encouraged to contact any of the authors listed below or your Arnold & Porter Kaye Scholer contact. The firm's financial services team would be pleased to assist with any questions you may have about the Beneficial Ownership Rule or AML compliance more broadly.

© 2017 Arnold & Porter Kaye Scholer LLP. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. 31 C.F.R. § 1010.230.

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