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Beneficial Ownership: FinCEN grants exceptive relief to covered financial institutions

By Jennifer Morrison, VP, Senior Risk Manager

NaomiGlass On September 7, 2018, the Financial Crimes Enforcement Network (FinCEN) issued Ruling FIN-2018-R004 to finalize certain exceptions to the Beneficial Ownership Requirements for Legal Entity Customers (members) for certain accounts. This final Ruling follows several 90-day limited exceptive relief releases from FinCEN as they studied the issues financial institutions encountered implementing the Beneficial Ownership Rule on May 11, 2018. FinCEN met with stakeholders, including representatives from financial institutions, trade organizations, regulators, and law enforcement to obtain feedback. In reviewing the characteristics of the following covered products, FinCEN agreed with stakeholders that the burden of compliance with the Beneficial Ownership Requirements was not commensurate with the money laundering risks posed by these products. In fact, the characteristics of these accounts make money laundering impractical. The Ruling applies to the following products only if the accounts were established before the Beneficial Ownership Rule’s Applicability Date of May 11, 2018, and the Ruling replaces and supersedes the May 16, 2018, and August 8, 2018, limited exceptive relief statements.

Certificates of Deposit (CD)

The Ruling states that the CD must have a specified maturity date, and funds cannot be withdrawn before that date without incurring a penalty. The customer/member also cannot add funds to the CD during the term. The CD can be renewed or closed at the maturity date, and the account will automatically renew absent affirmative action by the customer/member to close the account.

Loan renewals, modifications, and extensions

The Ruling applies to those loans that are renewed, extended, or modified, after a loan application process is finalized and a loan is approved, such that the renewals/extensions/modifications do not substantively change the terms of the loan or require additional underwriting. The industry also represented that, as with CDs, some loans are subject to automatic renewal, modification, or extension within a specified time and require no action from the customer/member for that renewal, modification, or extension to take effect.

Commercial lines of credit and credit cards

The Ruling applies to a commercial line of credit, defined as a revolving loan account, that allows a commercial enterprise to draw upon a predetermined amount of funds and generally use the funds only for specified business purposes, such as those relied on by small businesses for financing short-term needs (i.e. accounts payable and payroll). The business may repay the line at any time, at which point the funds become available for borrowing again. Credit cards are revolving accounts and like the commercial line of credit, they grant the customer/member a maximum credit limit. The credit card can be used repeatedly as long as the limit is not exceeded. The financial institution may change the terms of the credit card without requiring affirmative assent of the customer/member.

1FinCEN’s authority is granted under 31 U.S.C. § 5318(a)(7) and 31 CFR § 1010.970(a). See CFR § 1020.210(b)(5) for AML program requirements for credit unions.

Please note that the Ruling applies to legal entity members; therefore, the Ruling applies to credit cards granted to business members not consumers.

Safe deposit boxes

Financial institutions rent safe deposit boxes to customers/members, including legal entity members, to store valuables, such as collectibles, documents, and jewelry. Financial institutions held that during the rental period, the financial institution has minimal or no communication with the customer/member as long as the rental payment is made. In conclusion, FinCEN issued a final Ruling on September 7, 2018, with respect to certain financial institution products that are characterized by their often-automated renewals. In issuing this Ruling, FinCEN agreed with financial institutions that the burden of meeting the Beneficial Ownership Requirements outweighed their respective money laundering risks. It is also important to note that the Ruling applies only to existing accounts opened prior to the Applicability Date of May 11, 2018. Any accounts opened on or after May 11, 2018, for legal entity members must comply with the Beneficial Ownership Requirements. A copy of the FinCEN Ruling FIN-2018-R004 can be found here.View the FinCEN Ruling FIN-2018-R004: