A Beneficial Change to Beneficial Ownership

A Beneficial Change to Beneficial Ownership

In keeping with its recent trend of issuing guidance at the eleventh hour, FinCEN finally made permanent the beneficial ownership exception for certain renewing accounts last Friday afternoon.

If you weren’t one of the ones anxiously refreshing the FinCEN website in anticipation of this, a bit of background first. This whole issue arose because one of the questions from the April 3, 2018 Frequently Asked Questions indicated that CD rollovers and certain loan renewals are considered an “establishment of a new account relationship” and so banks are required to obtain beneficial ownership information at the time of renewal. The industry did not agree with this, noting that typical practice is not to treat these as new account openings, because usually they are done automatically and there is no change to account information.   

FinCEN listened to these concerns and issued a 90-day exemption, and on the last day of that exemption, a 30-day extension. Even though this was welcome relief, there was still uncertainty as to which accounts were and were not covered by the exemption. Luckily, this permanent ruling clarifies the four types of “new accounts” to which the exemption applies, and how these accounts are defined for purposes of the exception: 

  • A rollover of a certificate of deposit (CD);
  • A renewal, modification, or extension of a loan that does not require underwriting review and approval;
  • A renewal, modification, or extension of a commercial line of credit or credit card account that does not require underwriting review and approval; and
  • A renewal of a safe deposit box.

Certificates of Deposit

For this purpose, a CD is a deposit account having a specific maturity date (it can be a week or several years), but cannot be withdrawn before that date without incurring a penalty, which is different than how a “time deposit” is defined for Reg. D purposes. The customer cannot add additional funds to the CD, and at maturity, the customer is entitled to the amount deposited and any accrued interest. Typically, the account will automatically renew unless the customer has taken some affirmative action to close the account.

Loan Renewals, Modifications, and Extensions

FinCEN states that the industry “has also represented that, as with CDs, some loans are subject to automatic renewal, modification, or extension” without substantively changing the terms or requiring additional underwriting “and require no action from the customer.” It does not give any examples of these, however, and from talking to our C/A members, these seem to be uncommon.

Commercial Lines of Credit and Credit Cards

The focus here is that the loan is revolving and only for specified business purposes, like covering payroll or paying suppliers. The bank can often change certain terms of the line of credit or credit card, like the credit limit, without requiring affirmative assent from the customer, so these would also be exempt.

Safe Deposit Boxes

For purposes of the exemption, FinCEN describes the typical bank-customer relationship as the customer paying the safe deposit box rental fee by electronic deduction from an account at the bank, and otherwise, there is minimal or no communication with the customer, so long as the rental payment is made. Besides this, the ruling doesn’t provide much else in the way of guidance on which types of renewals may not be covered.

The new exception applies to any of these that occur on or after May 11, 2018, when the rule originally went into effect. Just like with the prior temporary extensions, the exception does not apply to the initial opening and just applies to the beneficial ownership requirements. So the bank must still comply with all other applicable AML requirements under the BSA, like maintaining an AML program and SARs.  

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