As the ultimate beneficial ownership (UBO) rules are very new, I have noticed that there still seems to be some confusion as to what the new CDD rules require in regards to the timing of beneficial owner identification and verification. Therefore, I will attempt to take a deep dive into the timing requirements for beneficial owners.
Timing Requirements for UBO Identification and Verification
First, it is my understanding that the final rule is clear that the beneficial owners must be identified at account opening, but the verification could occur “within a reasonable time after the account is opened.” My understanding of this comes from the final rule as follows:
1010.230(b)(1) sets the timing requirements for identification:
“(1) Identify the beneficial owner(s) of each legal entity customer at the time a new account is opened, unless the customer is otherwise excluded pursuant to paragraph (e) of this section or the account is exempted pursuant to paragraph (h) of this section….”
As you can see in this text, the rule specifically states that each beneficial owner must be identified “at the time a new account is opened.” While I guess this could be debatable - everything is, isn’t it? - the conservative approach (that won’t get you in trouble) is to assume that each beneficial owner must be identified before a signature card (deposits) or promissory note (loans) is signed. To me, this is what it means to “open” an account.
In addition to the timing requirements for UBO identification, the preamble discusses the timing requirements for verification of beneficial owners as follows:
“Because the risk-based verification procedures must contain the same elements as required by the applicable CIP rule to verify the identity of individual customers, verification must be completed within a reasonable time after the account is opened.”
This text clearly states that “verification must be completed within a reasonable time after the account is opened.” This statement appears to be the source of confusion and the justification for those who believe that UBO information can be obtained after account opening.
What we really need to understand, however, is the difference between identifying and verifying beneficial owners.
The Difference Between UBO Identification and UBO Verification
As the rules clearly state that ultimate beneficial owners must be identified at the time a new account is opened, but can be verified within a reasonable time after account opening, we need to understand the difference between identification and verification. In fact, our real question becomes this: does the collection of the name, DOB, address, and SSN/ID fall under identification or verification?
To answer this, we need to take a deep look at the technical requirements of the rule. While 1010.230(b)(1) is the section that requires UBO identification, 1010.230(b)(2) is the section of the new CDD rules which requires financial institutions to “verify the identity of each beneficial owner identified.” This section specifically states that “at a minimum, these procedures must contain the elements required for verifying the identity of customers that are individuals under 1020.220(a)(2) of this chapter…”.
For reference, here is the section of 1010.230(b)(2) that provides the verification requirements:
(2) Verify the identity of each beneficial owner identified to the covered financial institution, according to risk-based procedures to the extent reasonable and practicable. At a minimum, these procedures must contain the elements required for verifying the identity of customers that are individuals under § 1020.220(a)(2) of this chapter (for banks);
As you can see, this text states that “these procedures must contain the elements required for verifying the identity of customers that are individuals under 1020.220(a)(2)...” When we look at the referenced section 1020.22(a)(2), we discover that this is a reference to the CIP rules, which contains two parts:
1020.22(a)(2)(i)(a) is the “customer information required” section that requires the name, DOB, address, and SSN.
1020.22(a)(2)(ii) includes the customer verification requirements (both through documents and non-documents) of CIP.
Based on this, it appears that the collection the name, DOB, address, and SSN are not part of the “elements for verifying the identity of customers that are individuals,” but rather, are part of the “identifying information that will be obtained from each customer” which, therefore, must be collected “at the time a new account is opened.”
Conclusion on Obtaining UBO Information After Account Opening
The bottom line for me is this: Since you must have the name, DOB, address, and SSN of the BO at the time of account opening, the only thing you can really delay after account opening is collecting the DL and conducting non-documentary verification (as applicable). That said, the DL contains the name, DOB, and address which could be an easy way for a bank to request the information.
Therefore, I see no benefit whatsoever in permitting the delay of documentary verification when so much other information (which is actually contained on the DL) is required at the time the account is opened.