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Beneficial ownership 2.0: Rules still unclear for financial institutions

Nov 20, 2022

The U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN) issued a final rule on September 30, 2022, regarding beneficial ownership reporting requirements, implementing Section 6403 of the Corporate Transparency Act. The rule will be effective January 1, 2024. Its intent is to crack down on illicit finance, support law enforcement efforts and increase transparency with regard to the persons who own or control a company.

The ruling would require certain corporations and limited liability companies to file beneficial ownership information directly with FinCEN, which will maintain a national beneficial ownership information (BOI) database.

The new ruling varies from the requirements currently in place in that it is aimed at collecting beneficial ownership data on U.S. entities with fewer than 20 full-time employees, no more than $5 million in gross annual receipts and at least one office physically located within the U.S. It is also different in the timing of the data collection.

Broader requirements

Under current requirements, beneficial ownership data is collected at the formation of an account, with updates based on defined triggering events going forward.

The new requirements call for the collection of this data within 30 days of the inception of the business for entities formed after the effective date of the rule and requires initial reports for entities formed prior to the effective date to be filed within one year of the effective date. Updates will be required within 30 days of a change to information that had previously been filed with FinCEN.

The final rule defines two components of beneficial ownership (much in the way the current rule does): ownership interest and substantial control. Ownership interest is defined as ownership of at least 25% interest in a reporting company. Under the new rule, there are three components of substantial control.

They are:

  • Serving as a senior office of a reporting company
  • Having authority to appoint or remove a senior officer
  • Having substantial influence (i.e., the ability to direct, determine or decide important matters affecting the reporting company)

Each of the applicable beneficial ownership parties identified would have to provide FinCEN their name, birthdate, address and a unique identifying number from an acceptable document, including the image of the document.

Once the required information is provided to FinCEN, the individual reporting their data could obtain a FinCEN identifier that can be used in subsequent BOI reports in lieu of providing the required information to the party completing the report.

Within one year of the effective date of the rule, FinCEN will be required to rescind much of the identification and verification requirements under the current customer due diligence (CDD) rules; however, the general requirement for financial institutions to identify and verify beneficial owners would be retained.

In addition, other rulemakings are expected with respect to who may access the BOI, for which purposes it may be accessed and safeguards to ensure the information maintained is secured and protected.

BOI impact on financial institutions

For the time being, financial institutions must continue to collect BOI in the same manner they’ve followed since 2018; however, additional rulings are expected within the year that could change those requirements.

For now, financial institutions should practice business as usual with respect to the collection of BOI, while at the same time, stay alert for proposed revisions to the customer due diligence rule and the opportunity to provide commentary.

How Wipfli can help

Financial institutions are increasingly expected to step of up their efforts to counter illicit finance schemes. Wipfli specialists can work with you to ensure that you are meeting your customer due diligence requirements and other regulatory compliance measures. As new federal requirements take effect, we can help you ensure that your organization is in compliance. Contact us to learn more about how we can help you protect your customers and your institution.

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Author(s)

Katie L. Kennedy, CFE, CUCE
Senior Manager
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