Banking and Finance Law Daily FFIEC updates Customer Due Diligence, Beneficial Ownership examination procedures
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Monday, May 14, 2018

FFIEC updates Customer Due Diligence, Beneficial Ownership examination procedures

By Colleen M. Svelnis, J.D.

The Federal Financial Institutions Examination Council (FFIEC), with the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the National Credit Union Administration, has announced it is issuing new examination procedures on the Financial Crimes Enforcement Network FinCEN’s final rule, "Customer Due Diligence Requirements for Financial Institutions," which was issued on May 11, 2016. The updated customer due diligence and beneficial ownership sections of the FFIEC Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual replace those in the current "Customer Due Diligence—Overview and Examination Procedures" section, issued on Dec. 2, 2014.

The FDIC issued a Financial Institution Letter to all its supervised banks and savings associations notifying them of the new examination manual; while the OCC has issued a Bulletin to all OCC-supervised institutions notifying them of the examination procedures.

FinCEN Final Rule. FinCEN’s 2016 final rule clarifies customer due diligence requirements and also includes a new requirement for covered financial institutions to identify and verify the identity of beneficial owners of certain legal entity customers. Banks and other covered financial institutions must comply with this rule beginning on May 11, 2018.

The AML program requirement for each category of covered financial institutions was also amended to explicitly include risk-based procedures for conducting ongoing customer due diligence. In addition, customer due diligence also includes conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

CBA requests flexibility. Richard Hunt, President and CEO of the Consumer Bankers Association (CBA) expressed support for FinCEN’s final customer due diligence rule, but urged FinCEN to support the FFIEC’s development of a leniency expectation until banks have an appropriate time to respond to the published expectations. In a letter sent to FinCEN’s Director Kenneth A. Blanco, Hunt wrote that it "appreciates the time banks were given to implement this complex data collection rule," but noted that "unexpected developments and delays have surfaced, creating compliance challenges for covered financial institutions."

The CBA noted that at the time the letter was written the FFIEC exam manual incorporating the new CDD rule had not yet been released. The letter called the exam manual "critical to understanding how examiners will examine banks in this area" and stated that without it, "banks will not have the appropriate tools required to ensure full compliance with the new rule."

The CBA referred to FAQs recently released by FinCEN for clarification and guidance, and stated the "late publication" of the FAQs "adds complexity to compliance requirements set for May 11."

Companies: Consumer Bankers Association

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