FinCEN Relief For Rollovers From Beneficial Ownership Requirements

On Friday September 7, 2018, the Financial Crimes Enforcement Network (FinCEN) granted exemptive relief for covered financial institutions from the obligations of the Beneficial Ownership Rule when a legal entity customer opens a new account as a result of the following:

  • A rollover of a certificate of deposit (CD) (as defined below);

  • A renewal, modification, or extension of a loan (e.g., setting a later payoff date) that does not require underwriting review and approval;

  • A renewal, modification, or extension of a commercial line of credit or credit card account (e.g., a later payoff date is set) that does not require underwriting review and approval; and

  • A renewal of a safe deposit box rental.

This exemption only applies to rollovers of such accounts and does not apply to the initial account opening of these accounts.  

For clarification purposes, FinCEN defined a CD as follows:

“For purposes of this Ruling, a certificate of deposit (CD) is a deposit account that has a specified maturity date, but cannot be withdrawn before that date without incurring a penalty. The definition of “CD” for the purposes of this Ruling differs from the definition of “time deposit” in Regulation D of the Board of Governors of the Federal Reserve System (Reserve Requirements of Depository Institutions, 12 CFR Part 204); see 12 CFR 204.2(c)(i). During the term of the CD, a customer cannot add additional funds to the CD. The term of a CD may vary from a week to several years. At the end of the term, when the CD matures, the customer is entitled to the amount deposited and any interest that has accrued; the customer may also have the ability to elect to either renew or close the account. Typically, the account will automatically renew absent affirmative action by the customer to close the account.”

While the rule should be fairly straightforward for most accounts, it is important to note a few unique situations that require consideration as to how a financial institution will proceed. First, FinCEN stated that a loan or line renewal, modification, or extension is only exempt from the rules if it “does not require underwriting review and approval.”  Therefore, financial institutions should proceed with caution and careful consideration when considering how the Beneficial Ownership Rule applies to loans or lines of credit for commercial customers. For example, financial institutions may need to define what constitutes a credit decision (i.e. underwriting that triggers BO rules) and what constitutes a regular modification approval.

Secondly, financial institutions will need to ensure that procedures are established for times when a commercial customer adds to or takes from an automatically renewable CD during the grace period. When a customer has interactions with a financial institution such as adding to or taking from a renewing CD, financial institutions should obtain updated BO information to ensure compliance.

The rule is retroactive to May 11, 2018, which essentially erases question number 12 from the April 3, 2018 Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions.

The entire rule can be found here.

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