August 9, 2018

FinCEN Extends Rollover and Renewal Exception to Beneficial Ownership Rule


On August 8, 2018, the Financial Crimes Enforcement Network (FinCEN) extended for an additional 30 days the exceptive relief granted to covered financial institutions from collecting beneficial ownership information on certain accounts that automatically renewed or rolled over.1 The extension provides additional time to financial institutions still grappling with how to develop and implement controls for accounts that existed before the beneficial ownership rule's May 11, 2018 effective date and whose renewals or rollover qualify as a "new account" under the beneficial ownership rule,2 even if the legal entity customer is an existing customer.

Financial institutions' difficulties implementing controls relating to this issue stem from FinCEN's interpretation that a renewal or rollover of certain products is considered the establishment of another formal relationship and, thus, the opening of a new account. Although FinCEN clarified its position on this issue in its April 3, 2018 Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions (FAQs), FinCEN issued the initial 90-day exceptive relief on May 16, 2018, explaining that it "understands some covered institutions have not treated such rollovers or renewals as new accounts and have established automatic processes to continue the banking relationship with the customer."3

What Does This Mean for Our Bank?

Covered financial institutions should utilize the new 30-day extension as an opportunity to assure their controls and procedures properly classify renewals and rollovers as new accounts and that their automated monitoring systems are configured to automatically generate alerts to collect beneficial ownership information on qualifying account openings. Financial institutions should also consider conducting training on this issue to employees tasked with monitoring and collecting information on these accounts and revising their audit procedures to capture FinCEN's FAQs and any measures taken by the institution during FinCEN's periods of exceptive relief. Finally, financial institutions should consider documenting their efforts and communicating their progress to their board of directors or appropriate subcommittee.

For your convenience, Question 12: Collection of beneficial ownership information: Product or service renewals, from FinCEN's April 3rd FAQs is reproduced below.

Are financial institutions required to have their legal entity customers certify the beneficial owners for existing customers during the course of a financial product renewal (e.g., a loan renewal or certificate of deposit)?

A. Yes. Consistent with the definition of "account" in the CIP rules and subsequent interagency guidance,4 each time a loan is renewed or a certificate of deposit is rolled over, the bank establishes another formal banking relationship and a new account is established. Covered financial institutions are required to obtain information on the beneficial owners of a legal entity that opens a new account, meaning (in the case of a bank) for each new formal banking relationship established, even if the legal entity is an existing customer. For financial services or products established before May 11, 2018, covered financial institutions must obtain certified beneficial ownership information of the legal entity customers of such products and services at the time of the first renewal following that date. At the time of each subsequent renewal, to the extent that the legal entity customer and the financial service or product (e.g., loan or CD) remains the same, the customer certifies or confirms that the beneficial ownership information previously obtained is accurate and up-to-date, and the institution has no knowledge of facts that would reasonably call into question the reliability of the information, the financial institution would not be required to collect the beneficial ownership information again. In the case of a loan renewal or CD rollover, because we understand that these products are not generally treated as new accounts by the industry and the risk of money laundering is very low, if at the time the customer certifies its beneficial ownership information, it also agrees to notify the financial institution of any change in such information, such agreement can be considered the certification or confirmation from the customer and should be documented and maintained as such, so long as the loan or CD is outstanding.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. 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. FIN-2018-R003.

  2. 31 C.F.R. § 1010.230.

  3. FIN-2018-R002.

  4. See "Interagency Interpretive Guidance on Customer Identification Program Requirements under Section 326 of the USA PATRIOT Act, FAQs: Final CIP Rule," p. 8 (April 28, 2005).

Subscribe Link

Email Disclaimer