Compliance Blog

Written By Stephanie Lyon, Senior Regulatory Compliance Counsel, NAFCU

Credit unions around the country have been hard at work preparing for FinCEN’s Customer Due Diligence (CDD) rule since it was finalized in 2016. The CDD compliance road has been long with many a winding turns but most credit unions have either managed to cross the finish line or are tackling collecting beneficial ownership information for certain accounts that have automatic renewals or rollovers now. If you are one of these credit unions, you may be aware FinCEN created a tailored exemption from the mandatory compliance deadline of May 11, 2018 for certain financial products that are deemed to be lower risk for money laundering. We blogged about this relief that was set to expire August 9, 2018, but FinCEN has again surprised the industry by extending the deadline to September 8, 2018 the day before it was set to expire.

The relief is limited to certain products like share certificates or loan accounts that automatically rollover or renew and were established before May 11, 2018. The extension of this relief is exciting as some credit unions have told us it has been a tedious task to locate legal entity members’ representatives to obtain beneficial ownership information for these types of accounts. This is especially problematic for federal and state chartered credit unions that have to follow some type of “once a member always a member” business model and cannot simply close an account without jumping through many hoops.

To recap why this is an issue, the CDD rule requires that every time a new account is opened or there is a triggering event, credit unions collect beneficial ownership information after May 11, 2018 (or now, September 8, 2018 if the product is a loan that automatically renews or a share certificate rollover). However, if the credit union cannot obtain this information for any reason, the question then becomes, what do we do to stay in compliance? This prior NAFCU blog discusses the answer to this question, but the main point is, there is no clean way of ending a member relationship without going through the process of expulsion or suspending services if the credit union has a written policy in place.

Another solution could be to solely close the account that is renewing, but this may require the credit union to look at its share certificate or loan agreement to determine the contractual rights and requirements of the credit union as there may be some notice requirement or method of returning/collecting funds depending on the type of account. This solution is more of a “Band-Aid” approach as it only prolongs the need to collect beneficial ownership information at a later time when the member opens a new account or there is a triggering event.

Even with the exemptive relief alive and well for another month, this is not a lot of time so credit unions may want to gear up and ensure their internal processes are ready to handle these types of issues to achieve mandatory compliance with the rule. This could mean credit unions will need to update their limitation of services policy, send a notice to all legal entity accounts that have accounts automatically renewing/rolling over soon and for which the credit union does not have beneficial ownership information, or make the decision to close that account when it comes up for renewal knowing that this is only a temporary solution.

On a separate but related note, I am excited to see many of you next week at NAFCU’s annual BSA Seminar in Denver, Colorado! Representatives from FinCEN will be attending so this is a great opportunity to ask any last minute CDD compliance questions.