Beneficial Owner Verification Requirements
FinCEN released a Final Rule under the Bank Secrecy Act, which imposes specific requirements for financial institutions to identify and verify the identity of beneficial owners of legal entity customers when opening a new account.
Beneficial owner – is either an individual who directly or indirectly owns 25 percent or more of the equity interest of a legal entity customer, or a single individual with significant management responsibility such as a CEO or President.
Legal entity customer – is a corporation, limited liability company, or other entity that is created by the filing a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account. Financial institutions, public companies, registered brokers, and public accounting firms, among others, are not considered legal entity customers.
New account – is an account opened at a covered financial institution on or after May 11, 2018. Account includes a formal banking relationship established to provide or engage in services, dealing, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit. Thus, the identification and verification of beneficial owners also applies to existing members wishing to open new accounts.
Verification of the beneficial owners has the same requirements as verification of your members (per §1020.220) – but the two do not have to match. For example, your Member Identification Program may require verification through documentary methods, while your Beneficial Owner Identification Program may allow verification through non-documentary methods.
The Final Rule provides a Certification Form that credit unions can use to identify beneficial owners. Using the form is not required, but the credit union should obtain the information requested on the form. We have created a Word version of this form available here.
The final rules are effective July 11, 2016, but compliance will not be required until May 11, 2018.
Credit unions will need to:
- Update their BSA policies and procedures to include verification of beneficial owners – including retention of records of containing identification and verification used for beneficial owners.
- Use the Certification Form, or another method to capture the required information when opening a new membership, or new account for an existing membership.
Final Rule as submitted to the Federal Register