FinCEN Issues Proposed Rule Enhancing Customer Due Diligence Requirements

Last Thursday, the Financial Crimes Enforcement Network (FinCEN) released a proposed rule aimed at enhancing the customer due diligence (CDD, or MDD for credit unions) programs at financial institutions. The proposal has several parts to it, although most will not be new or unfamiliar to credit unions.

The proposed rule adds language to the Bank Secrecy Act that will help clarify and strengthen customer due diligence requirements that financial institutions already have to follow. The proposed rulemaking would amend the existing rules so that each of the four pillars are referenced in FinCEN’s program rules. These four pillars include: (i) identifying and verifying the identity of customers; (ii) identifying and verifying the identity of beneficial owners of legal entity customers (i.e., the natural persons who own or control legal entities); (iii) understanding the nature and purpose of customer relationships; and (iv) conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.

While these seem like major updates, credit unions are already following guidance issued on three of the four pillars. The biggest change that credit unions will see as a result of this rule, if finalized as proposed, is in regards to identifying beneficial owners of legal entity customers. This is something that most credit unions do not engage in as a standard practice. FinCEN listened to industry feedback during their information gathering process and took a step with the proposed rule that might make this burden a bit easier on credit unions. FinCEN included a standard form that credit unions will be able to supply to the person opening the entity account that explains the need for beneficial owner information and gathers such information. If the form makes it through to the final rule, credit unions will have one form they can use at the time of account opening to ensure that all of the required data for beneficial owners is collected. The form even includes a definition of beneficial owner under the rule to enable the individual opening the account, which could be a person other than the owner, to identify which person(s) will need to be reported on the form.

Comments on the proposed rule are due by October 3, 2014. You can view the current proposal here.

Compliance Question of the Week

For BSA-AML Risk Assessment purposes, would a business account for a vehicle dealership be classified as a Money Service Business (MSB) or another type of the special classifications?      

First, FinCEN defines Money Service Businesses as a distinct category of financial service providers to include currency dealers, check cashers, issuers of traveler’s checks or money orders, seller or redeemer of traveler’s checks, money transmitters and the U.S. Postal Service. Vehicle dealerships are not on this list.

BSA/AML requires credit unions to develop a compliance program. Credit unions are urged to use a risk-based approach with this program. In other words, develop procedures that take into consideration the risks associated with the membership, the service/products offered and geographic location. In terms of membership, BSA/AML is particularly interested in cash-intensive businesses such as convenience stores, restaurants, retail stores, liquor stores, cigarette distributors, privately-owned ATMs, vending machine operators, and parking garages.

Whether you classify vehicle dealerships as high risk or low risk depends on your own BSA/AML policy tolerances. Credit unions should consider collecting the following information when opening higher risk accounts: purpose of account; member’s occupation or type of business; banking references; financial statements; source of funds/wealth; beneficial owners of the account (if applicable), etc. Credit unions are expected to apply enhanced customer due diligence procedures when opening accounts that fall into higher risk categories.

Related Links:

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA released a Board Action Bulletin detailing the July 31 Board Meeting. The NCUA Board approved two items of note: Removal of waiver requirement for federal credit unions to exceed the 5% aggregate limit on fixed-asset investments; and reprogramming the 2014 operating budget for the remainder of the year. 

The NCUA released a new economic video discussing the risks in an improving economy.

Consumer Financial Protection Bureau (CFPB)

The CFPB has extended the comment period regarding its proposal to give consumers the option to make their complaints public in the CFPB’s Consumer Complaint Database. The deadline has been extended to September 22, 2014.

The CFPB released a new toolkit titled “Your Money, Your Goals” that can be used to inform consumers on various topics such as ordering and fixing credit reports, keeping track of their income and bills, making decisions about repaying debts, and taking on new ones.

The CFPB has released a new report on checking account overdrafts and how opting in for overdraft services is impacting consumers.

Financial Crimes Enforcement Network (FinCEN)

FinCEN issued a proposed rule aimed at clarifying and enhancing current customer due diligence requirements under the Bank Secrecy Act.

Federal Deposit Insurance Corporation (FDIC)

The FDIC released their Summer 2014 Issue of Supervisory Insights.

Federal Reserve Board (FRB)

The FRB released a statement by the Federal Open Market Committee detailing its July 30meeting.

Financial Accounting Standards Board (FASB)

The third quarter edition of FASB’s Outlook E-Newsletter is now available.

Washington State Division of Credit Unions (DCU)

The DCU issued a letter to credit unions urging them to work with their members affected by the wildfires in Eastern Washington.  

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of July 31, 2014. The last update prior to this was July 30, 2014.


Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News.