FinCEN Eases CDD Requirements for Banks

Earlier this month, the Financial Crimes Enforcement Network (“FinCEN”) issued an exceptive order (the “Order”) providing relief for financial institutions from the requirement to verify the identity of beneficial owners of legal entities each time the entity opens a new account. Instead of having to verify the identities of beneficial owners each time a covered financial institution opens a new account for a legal entity, the order allows covered banks to instead limit the identification and verification of those identities to the following circumstances:

• Where a legal entity customer first opens an account;
• Any time thereafter when the covered bank has knowledge of facts that would reasonably call into question the reliability of previously obtained beneficial owner information; or
• As needed based on the covered bank’s risk-based procedures for ongoing customer due diligence.

Notably, In the case of the third bullet above, the Order confirms that covered banks may continue to rely on beneficial owner information previously obtained, provided the customer certifies or confirms (verbally or in writing) that the information is up-to-date and accurate.

Prior to the enactment of the Order, covered banks were required to verify the identity of beneficial owners of legal entities anytime that entity opened a new account with the covered bank, regardless of how short a time passed from the customer’s opening of the original account.

The Order is in response to President Trump’s Executive Order 14192, under which the Administration announced a policy to significantly reduce regulatory burdens. Notably, as part of the Order, FinCEN notes it will pursue other changes to its 2016 customer due diligence rule in furtherance of Executive Order 14292.

A copy of the Order is available at: https://www.fincen.gov/news/news-releases/fincen-issues-exceptive-relief-streamline-customer-due-diligence-requirements