On April 3, 2018, the Financial Crimes Enforcement Network (“FinCEN”) published Frequently Asked Questions (“FAQs”) to help “covered financial institutions,” including broker-dealers and dually registered SEC investment advisers, better understand its new Customer Due Diligence Requirements (“CDD Rule”), which will become effective on May 11, 2018. Other “covered financial institutions” include insured banks, commercial banks, federally insured credit unions, savings associations, trust banks or trust companies that are federally registered, and mutual funds.
The CDD Rule will require covered financial institutions to adopt written policies and procedures that are sufficiently tailored to “identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program.” A beneficial owner is defined as an individual who directly or indirectly owns 25 percent or more of a legal entity customer’s equity and a person who exercises significant control over a legal entity customer. However, according to the FAQs, should covered financial institutions desire to gather information on individuals owning less than 25 percent of a legal entity customer, they are welcome to do so. The FAQs also provide that covered financial institutions are required to verify beneficial owners’ identities using risk-based procedures that feature the same factors financial institutions are required to use to verify customer identities under the Customer Identification Program rules. Continue reading