Incorporation Solidifies Customer Due Diligence as “Fifth Pillar” to BSA/AML Compliance Program
May 11, 2018 was the much anticipated effective date for the Customer Due Diligence (“CDD”) Requirements for Financial Institutions Rule (the “Beneficial Ownership Rule”) issued by the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). On the same day, the Federal Financial Institutions Examination Council (“FFIEC”) released two updates to the Bank Secretary Act/Anti-Money Laundering (“BSA/AML”) examination manual that incorporate and clarify the CDD Requirements and Beneficial Ownership Rule. The FFIEC is an interagency body that is “empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions.” The FFIEC examination manual drives the principles and obligations of covered financial instructions in creating BSA/AML compliance programs. The new updates further clarify the FinCEN rules and solidify CDD as the fifth pillar of the BSA/AML compliance regime.
As we previously blogged here, when FinCEN announced its final rule on CDD requirements it established two important requirements for covered financial institutions. First, the covered financial institutions were required to establish procedures to identify and verify the beneficial owners of all legal entity customers. Second, the rule required covered financial institutions to adopt ongoing risk-based CDD procedures as part of their AML compliance programs – including developing and updating customer risk profiles and conducting ongoing AML monitoring. We previously provided practical guidance to aid covered financial institutions in preparing for implementation of these two requirements. Now we will highlight the key considerations of FFIEC examination manual addressing these topics. Of particular interest, the new FFIEC examination manual provisions state in part that regulatory examiners are not supposed to engage in second-guessing specific decisions; rather, during an examination “the bank should not be criticized for individual customer decisions unless it impacts the effectiveness of the overall CDD program, or is accompanied to evidence of bad faith or other aggravating factors.” Continue Reading FFIEC Manual Incorporates Beneficial Ownership Rule and CDD Requirements