Compliance Blog

Written by Shari Pogach, Regulatory Paralegal, NAFCU

Late last month, NCUA issued Supervisory Letter No. 18-01 to federally insured credit unions on the agency’s examination expectations for compliance with the customer due diligence (CDD) and beneficial ownership provisions of the Bank Secrecy Act/Anti Money Laundering Rules (BSA/AML).  The supervisory guidance also included an updated examination BSA – Questionnaire.  These updates for assessing compliance with the new CDD and beneficial ownership requirements include:

• Is there a CDD policy?
• Is there a beneficial ownership identification and verification policy?
• Does the credit union have an adequate CDD program?
• Are the risk-based CDD policies, procedures and processes commensurate with the credit union’s BSA/AML risk profile, with an increased focus for higher risk members?
• Is there a process for identifying members that might be a higher risk for money laundering or terrorist financing and whether and/or when, on the basis of such risk, it is appropriate to get additional member information?
• Are there procedures for documenting analysis associated with the due diligence process, including guidance for resolving issues when insufficient or inaccurate information is obtained?
• Do the policies contain a clear statement of management and staff responsibilities, including procedures, authority and responsibility for reviewing and approving changes to a member’s risk profile when needed?
• Are there procedures for performing ongoing monitoring of the member relationship, on a risk basis, to maintain and update member information, including beneficial ownership information of legal entity customers/members?
• Do the policies and procedures define how member information, including beneficial ownership information for legal entity customers/members, is used to meet other regulatory requirements, including but not limited to, identifying suspicious activity and determining OFAC sanctioned parties?
• Are there established written procedures included in the credit union’s BSA/AML compliance program reasonably designed to identify and verify beneficial owners of legal entity customers/members?
• Are there procedures to require identification of the beneficial owner(s) of each legal entity customer/member (unless the member is otherwise excluded) at the time a new account is opened on or after May 11, 2018?
• Do the credit union’s procedures require the minimum information (name, address, identification number and data of birth) for beneficial owner(s) of legal entity customers/members, and timely verification of enough information to form a reasonable belief as to the beneficial owner's true identity?
• Is there a process for circumstances in which the credit union cannot form a reasonable belief that it knows the true identity of the beneficial owner(s) of a legal entity customer/member?
• Is there a record kept of the identity information, the method used to verify identity and verification results for the required period?
• Are transactions reviewed for compliance with the basic requirements?

NCUA field staff “will not take exception to a credit union’s non-compliance with the new BSA standards found in FinCEN’s final CDD and beneficial ownership rules effective May 11, 2018, and will not identify any such noncompliance as a significant BSA violation, provided the credit union is making a good faith effort to comply with the new rules” through the end of 2018.  Initially, NCUA field staff will be looking for a credit union’s awareness of, and will review its efforts to comply with, the new requirements.

Then in 2019, NCUA field staff will begin more in-depth reviews of a credit union’s BSA/AML policies, procedures and processes in order to assess overall compliance with regulatory requirements for CDD and for identifying and verifying beneficial owner(s) of legal entity members.  But NCUA also has noted “credit unions should understand that the NCUA’s acceptance of good faith efforts for supervision purposes does not shield a credit union from FinCEN penalties that could arise from failing to comply with all BSA/AML requirements.”

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FinCEN Makes Limited CDD Relief Permanent. We have blogged in the past about FinCEN's limited exceptive relief for certain financial products that are deemed to be lower risk for money laundering and terrorist financing such as share certificate rollovers and loan renewals. This relief was set to expire September 8, 2018. However, FinCEN announced this past Friday this relief will become permanent. Look out for Wednesday's blog that will cover the permanent exemption and what it means for credit unions.