The House Financial Institutions and Consumer Credit Subcommittee held a hearing to examine the impact on banks of the Financial Criminal Enforcement Network’s (FinCEN) recent rules regarding beneficial ownership and other matters.
FinCEN recently released frequently asked questions outlining the guidelines for beneficial ownership. It said financial institutions must collect information individuals who own 25 percent or more of the equity interests in the client company and the controlling owner.
“As a former banker and bank regulator, I understand the need for financial institutions to better know their customers and better identify beneficial owners,” Subcommittee Chairman Blaine Luetkemeyer (R-MO) said. “We must remember that due to delayed guidance and the call for significant changes, financial institutions will undoubtedly face compliance issues with FinCEN’s customer due diligence rule. Delayed implementation and enforcement of this important rule is the most responsible way to ensure that financial institutions are able to comply.”
Some witnesses said the rule, which is part of FinCEN’s Customer Due Diligence (CDD) rule, presents issues for banks.
“First, compliance with the CDD Rule is very expensive and burdensome,” Dalia Martinez, executive vice president, International Bank of Commerce, on behalf of the Mid-Size Bank Coalition. “Second, the CDD rule has many gray areas that are difficult to implement. [Third,] the rule puts a burden on banks to ensure the information the customer provides is accurate, but banks are not given either the tools or the guidance they need to make that determination. [Fourth,] while FinCEN has provided some guidance to banks in the form of FAQs, the FAQs in some cases are not clear, and in other cases, the FAQs create an even greater burden on banks and, ultimately, bank customers.”
Greg Baer, president of The Clearing House Association, offered his concerns.
“First, the rule requires financial institutions to identify beneficial owners on a per-account basis and not a per-customer basis; and second, its preamble does not explicitly affirm FinCEN’s sole ultimate authority to determine CDD standards, and rather appears to leave the door open for further ad hoc interpretations by examiners,” Baer said. “Additional guidance released by FinCEN earlier this month has exacerbated these concerns.”
Carlton Greene, a partner at Crowell & Morning LLP, praised the regulation from an enforcement perspective.
“The CDD Rule will provide important new information useful to law enforcement in the detection and prevention of money laundering, terrorism financing, and other financial crime,” Greene said. “FinCEN deserves credit for formalizing and setting boundaries to practices that previously had existed only in interpretive guidance. The promulgation of the rule, which has been ten years in the making, and FinCEN’s recent, extensive guidance interpreting the rule, represent an enormous labor and expenditure intellectual effort by the agency, and a substantial achievement.”
Greene added that banks have worked hard to understand and comply with their obligations under the Bank Secrecy Act.