Executive Summary

• &nbspThe U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) recently issued a proposed rule to amend existing Bank Secrecy Act (BSA) regulations on customer (member) due diligence (CDD), following a related advance notice of proposed rulemaking from 2012.

• &nbspSpecifically, the proposed rule would clarify and strengthen CDD obligations of financial institutions, including credit unions. The key elements for CDD include: 1) Identifying and verifying the identity of customers; 2) identifying and verifying the identity of “beneficial owners” of legal entity customers (i.e., natural persons who own or control legal entities); 3) understanding the nature and purpose of customer relationships; and 4) conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.

• &nbspThere would be a new explicit regulatory requirement for a financial institution to establish and maintain written CDD procedures that are reasonably designed to identify and verify “beneficial owners” of “legal entity customers” (e.g., corporation, limited liability company, partnership or other similar business entity), subject to certain exemptions. Existing supervisory guidance would also be incorporated into the CDD obligations.

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  • Identification – A financial institution would identify the “beneficial owner(s)” of each “legal entity customer,” unless they are otherwise exempt. To identify the “beneficial owner(s),” a financial institution would obtain at the time a new account is opened a certification form from Appendix A from an individual opening the account on behalf of the legal entity customer.
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  • Verification - With risk-based procedures to the extent reasonable and practicable, a financial institution would verify the identity of each “beneficial owner.” This verification should be at least identical to the institution’s Customer Identification Program (CIP) procedures for verifying the identity of individuals. It is important to note that the proposed verification of the identity of a “beneficial owner” does not require verification of the status of whether an identified “beneficial owner” is in fact a “beneficial owner.”

• &nbspComments for the proposed rule are due to FinCEN by October 3, 2014; please submit your comments to CUNA by September 22, 2014.

• &nbspFor further details, please see the FinCEN’s proposed rule in the Federal Register.

• &nbspIf you have any questions or comments, please contact CUNA Assistant General Counsel for Regulatory Research Dennis Tsang at dtsang@cuna.com.

• &nbsp Reliance on Another Financial Institution – A financial institution may rely on another financial institution (including an affiliate) to meet the CDD requirements with respect to any “legal entity customer” for account openings or similar business relationships, if 1) such reliance is reasonable under the circumstances; 2) the other financial institution is subject to a similar AML rule and is regulated by a federal functional regulator, and 3) the other financial institution enters into a contract that requires it to certify annually that it has implemented its AML program and that it (or its agent) will perform the requirements of the financial institution's procedures to comply with this rule.

• &nbsp AML Program Requirements for Financial Institutions – A financial institution must implement and maintain an AML program that: complies with the regulations of its federal functional regulator (e.g., NCUA), and complies with CDD requirements for correspondent accounts for foreign financial institutions and private banking accounts. A financial institution must include: 1) A system of internal controls to assure ongoing compliance; 2) Independent testing for compliance to be conducted by internal personnel or by an outside party; 3) Designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance; 4) Training for appropriate personnel; and 5) Appropriate risk-based procedures for conducting ongoing CDD to include, but not be limited to understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.

• &nbsp Effective Date – The proposed effective date is one year from the date of the issuance of the final rule.

Questions to Consider Regarding the Proposed Rule

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* 1. Generally – Does your credit union generally support this proposed CDD rule?

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* 2. Certification Form – Do you have any comments on the proposed certification form under Appendix A? How does the certification form affect your account opening process?

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* 3. Compliance Costs – Do you have an estimate of the additional compliance costs that would arise from the new requirements for “beneficial owners”? FinCEN believes that a financial institution would have to spend an additional 20 minutes to receive and verify the information on the new certification form for each new account opening.

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* 4. Definitions – Regarding the definitions of “beneficial owner” and “legal entity customer,” do you have any comments?

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* 5. Exemptions / Existing Customers – Does your credit union have any comments regarding the scope of the proposed exemptions? Are there any additional accounts that should be exempt?

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* 6. Effective Date – Would the proposed effective date of one year be sufficient for your credit union to make changes to comply with this rule?

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* 7. Other Comments – Do you have any other concerns, comments, or suggestions?

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* 8. (Optional) What is your credit union's asset size?

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* 9. (Optional) Please provide information about yourself and your credit union.

Thank you for your input and time - CUNA Regulatory Advocacy Team
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