The Beneficial Ownership rule’s mandatory compliance date of May 11, 2018, is right around the corner. While the mechanics of the rule may seem rudimentary, the implementation of this rule involves many facets. (For institutions who would like a refresher on the rule, please see the July 2016 BSA article, Beneficial Ownership Rule Is Finalized Finally, posted on Wipfli.com.) Some areas of implementation are under financial institutions’ direct control, while in other areas, institutions may need to rely on third-party vendors to implement changes. The following areas are directly impacted by the rule.
Customer Identification Program (CIP) policies and procedures: As part of a comprehensive policy, the definition of the beneficial ownership prongs (ownership and control prong) should be listed, along with those entities that are exempt from the rule. CIP policies should be updated to include compliance with the beneficial ownership rule, including the time frame for resolving any CIP exceptions on beneficial owners. In addition, the CIP should include the terms of use of the account while the information is being obtained. The policy should include methods of verification of identification of the beneficial owners, especially if it differs from the verification procedures for new customers. Finally, recordkeeping policies should also be updated to reflect the retention requirements established by the rule.
Customer due diligence (CDD) policies and procedures: CDD policies should be updated to describe circumstances when additional due diligence information should be collected such as for beneficial owners of high-risk entities and to define the frequency of monitoring of these newly identified high-risk customers.
Core data processing system: The core system should have the capability to capture the CIP data on all beneficial owners to allow for easy identification and Office of Foreign Assets Control (OFAC) verification. It is important for front line staff to differentiate between a beneficial owner versus signer on an account because a beneficial owner may not have signing rights to that account. We recommend that institutions set up several test scenarios on their core system to gauge how the information flows through. This is particularly important for those institutions that rely on an automated surveillance monitoring system (ASM) to identify and monitor suspicious activity. The test scenarios should also address OFAC screening and currency transaction report aggregation for beneficial owners. Institutions should contact the ASM account manager to obtain the vendor’s time frame for the system upgrade to allow for staff training and testing.
Certification form and disclosures: A determination should be made how institutions will provide the notification and certification form listed in Appendix A of the regulation. While the rule does not require the Certification of Beneficial Ownership form be in paper format, the rule does require a form to be completed for each new account established by covered entities. Institutions should determine which method can be best incorporated into their current account opening procedures. The rule is silent on whether the General Instructions to Appendix A must be included on the form or be freestanding (such as a lobby notice), so a determination should be made how institutions will provide this disclosure.
Training: This involves not only front line staff who bear direct responsibility for obtaining the information needed to comply with the rule but also tellers, commercial lenders, and the board of directors. These are the ombudsmen of institutions and will be vital in ensuring that the transition to this rule is seamless to existing customers affected by the rule. Regardless of whether or not institutions’ policies and procedures are fully mapped out, training should start now. This will allow institutions to address any concerns and questions staff and board members may have. It will also help institutions gauge the readiness of their staff and determine whether additional one-on-one training is needed for employees who may not feel comfortable asking beneficial ownership questions.
Start now to put policies, procedures, and expectations in place for this regulatory requirement. This will allow identification and resolution of any areas of concern and help ensure a successful implementation.
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