AML/CTF, Sanctions and Insider Trading
FFIEC Publishes Customer Due Diligence and Beneficial Ownership Overviews and Examination Procedures
On May 11, 2018, the U.S. Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation published the customer due diligence and beneficial ownership examination sections of the Federal Financial Institutions Examination Council BSA/AML Examination Manual. This release coincided with the May 11, 2018 compliance date for the Customer Due Diligence Requirements for Financial Institutions rule issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network on May 11, 2016, which enumerates explicit customer due diligence program requirements, including a requirement to identify and verify the beneficial owners of legal entity customers. The updated customer due diligence section of the manual provides an overview of customer due diligence requirements for financial institutions, including obligations related to maintaining a customer risk profile, establishing risk-based procedures for collecting customer information—including guidance with respect to higher-risk-profile customers—and ongoing monitoring of customer relationships. This section also includes examination procedures for regulators, including transaction testing, in order to assess a financial institution’s compliance with the customer due diligence requirements. The beneficial ownership section of the manual discusses the regulatory requirements for financial institutions to identify and verify the beneficial owners of legal entity customers. This section discusses the definition of legal entity customers, the control and ownership prongs of beneficial ownership, identification and verification of beneficial ownership information, recordkeeping and retention requirements and a financial institution’s ability to rely on another financial institution for performance of the obligations under the beneficial ownership rule. The Beneficial Ownership examination procedures also provide an appendix that discusses exclusions and exceptions under the rule.