Compliance Blog

Written by Stephanie Lyon, Senior Regulatory Compliance Counsel, NAFCU

FinCEN’s Customer Due Diligence rule has been in effect, for the most part, since May 11, 2018. As you may remember from past blog 1 and blog 2, FinCEN created a limited exceptive relief for certain financial products that present low risks for money laundering and terrorist financing and which the industry does not tend to treat as new accounts. This relief was set to expire first on August 9 and was then extended to September 8, 2018. After months of deliberation and speaking with industry representatives, FinCEN decided to make this relief permanent through FinCEN Ruling FIN-2018-R003.

The FinCEN ruling exempts four different types of accounts from the requirements to collect beneficial ownership information if these accounts were opened before May 11, 2018. The relief only applies to the rollover, renewal, modification or extension of these accounts and not to initial account opening. This means if any of these account types were opened before May 11, 2018, credit unions will not have to collect beneficial ownership information during subsequent rollovers, renewals or certain modifications.

Types of Accounts Exempted

The four types of accounts exempted from the requirement to collect beneficial ownership information are the described by FinCEN as follows:

1. Certificates of Deposit. These are better known in the credit union industry as share certificates or certificates. However, it is important to note FinCEN created their own definition of certificates of deposits that differs from “time deposits” as defined by Regulation D. To be exempt from the beneficial ownership requirement, the certificate must be a “deposit account that has a specific maturity date, but cannot be withdrawn before that date without incurring a penalty.” In addition, the member must not be allowed to add additional funds to the certificate; dividends earned during the term are not considered additional funds. A feature of FinCEN’s defined certificates is these accounts will automatically renew absent affirmative action by the member to close the account.
2. Loan Renewals, Modifications and Extensions. FinCEN did not define a loan account any differently than the industry. What is different about this account type is if the loan is renewed, modified, or extended, by for example setting a later payoff date, this action should generally not require additional underwriting, substantively changing terms or action from the member.
3. Commercial Lines of Credit and Credit Cards. Again, the definition of these accounts is the same as the industry’s general understanding. The changing of certain terms of a commercial line of credit or of a credit cards not requiring affirmative assent of the member will not trigger the collection of beneficial ownership information. An example of a change that may not trigger the collection of beneficial ownership information is increasing all commercial lines of credit limits.
4. Safe Deposit Boxes. These types of accounts are generally created by an agreement with the credit union in which the member has access to a secured space within the credit union to store valuables by paying a reoccurring fee automatically deducted from the member’s account. FinCEN notes that the agreement should generally prohibit storing money or dangerous substances. Renewing an agreement for the use of a safe deposit box by a legal entity member will also not trigger beneficial ownership information collection requirements.

If a credit union’s products do not fit FinCEN’s descriptions or characteristics, the credit union may not be able to utilize the exceptive relief and may need to collect beneficial ownership information for accounts opened or that renew, rollover or are modified after the mandatory compliance deadline of May 11, 2018.

Additional Implications

FinCEN’s ruling does highlight that just because these types of accounts are exempted from the requirement to collect beneficial ownership information when they rollover, renew or are modified after May 11, 2018, credit unions must still follow other requirements of the CDD rule such as understanding the nature and purpose of the member relationship to develop a risk profile, reporting suspicious activity and maintain and updated member information on a risk basis. For more information on these other requirements, read this member-only article from the BSA Blast. And finally a word of caution, FinCEN reserves the right to revoke this limited relief.