On September 7, 2018, after considerable industry feedback and two issuances of temporary relief, the Financial Crimes Enforcement Network (FinCEN) issued permanent relief to the banking industry from the requirement to collect beneficial ownership information on certain accounts that automatically renew or rollover.[1] Banks should incorporate these revised requirements into their anti-money laundering (AML) programs to ease their information collection efforts and avoid unnecessarily burdening customers.

The relief is provided in response to industry concerns that treatment of renewals and rollovers as “new accounts” was inconsistent with current industry practice and “[a]ny delay by the customer in providing the required beneficial ownership information could result in account closure and a corresponding loss of needed liquidity or financial stability (in the case of a loan account) or loss of investment benefit (in the case of a CD).” In addition, as we discussed in our prior Advisory, the requirement to collect information on these “new accounts” presented implementation challenges with respect to banks’ AML technology systems. FinCEN also cited industry concerns that the burden of complying with the beneficial ownership rule’s requirements for certain account renewals was not commensurate with the low money laundering risks associated with the renewal of such products.

Ultimately, FinCEN instructed the industry that it would permanently relieve covered institutions from the requirement to identify and verify beneficial ownership information for “new” accounts on or after May 11, 2018 that result from the following:

1. CD rollovers;
2. loan renewals, modifications, and extensions (e.g., setting a later payoff date) that do not require underwriting review and approval;
3. commercial line of credit or credit card account renewals, modifications, or extensions (e.g., setting a later payoff date) that do not require underwriting review and approval; and
4. safe deposit box rental renewals.

It is important to note that the exceptive relief does not relieve institutions of the need to collect beneficial ownership information at the time an account is initially established, but rather only upon certain rollover or renewal occurrences as identified above.

What Does This Mean for Banks?

FinCEN’s permanent exceptive relief changes the requirements of the beneficial ownership rule in two ways:

• removing the obligation to collect beneficial ownership information when an account opened before May 11, 2018 rolls over or renews after May 11, 2018, as if it were a new account; and
• removing that same obligation for rollovers, modifications, extensions, and renewals of such accounts opened after May 11, 2018.

In response to these changes, covered institutions should consider revising their AML programs, policies, and desktop procedures, and consider providing updated training or written alerts to front line bankers tasked with collecting beneficial ownership information. Any institution that has already implemented controls to collect beneficial information on account renewals or rollovers should consider whether to revert the bank’s program and AML systems and revise its policies and procedures accordingly. Importantly, when revising policies and procedures, banks should define carefully which product renewals and rollovers qualify for the exceptive relief and which still trigger the requirement for bankers to collect beneficial ownership information.

ENDNOTE

[1] FIN-2018-R003.

This post comes to us from Arnold & Porter Kaye Scholer LLP. It is based on the firm’s memorandum, “FinCEN No Longer Requires Banks to Collect Beneficial Ownership Information on Certain Account Renewals and Rollover,” dated September 10, 2018, and available here. Christopher L. Allen and Erik Walsh also contributed to the memorandum.