FinCEN Creates Exception to Beneficial Ownership Rule

checking account

Written by Jeff Danen

March 18, 2019

As part of its efforts to combat money laundering and other fraudulent activity, the Financial Crimes Enforcement Network (FinCEN) issued its Beneficial Ownership Rule, effective for new accounts opened on or after May 11, 2018. The rule requires financial institutions , as part of their customer identification programs, to verify the identity of the beneficial owners of certain legal entities. Beneficial owners include individuals who, directly or indirectly, own 25 percent or more of an entity, as well as any individual who has “significant responsibility to control, manage or direct the legal entity.”

In a September 7, 2018, ruling, FinCEN created an exception to the beneficial ownership rule for legal entities that open new accounts on or after the effective date as a result of:

  • Rolling over a certificate of deposit
  • Renewing, modifying or extending a loan, commercial line of credit or credit card account that doesn’t require underwriting review and approval
  • Renewing a safe deposit box rental

The exception applies only to rollovers, renewals, modifications or extensions of the above product types that take place on or after May 11, 2018. It doesn’t apply to the initial opening of such accounts.

Financial Institutions Considering Use of Alternative Credit Data

Some lenders are considering the use of alternative data to expand access to credit for people with thin credit histories or negative items on their credit reports. By developing innovative techniques for analyzing a borrower’s ability to repay, lenders can expand their pools of potential borrowers beyond those identified by traditional techniques.

Alternative data refers to information that may be used to evaluate creditworthiness but is not traditionally part of a credit report. Examples include rent payments, mobile phone payments, cable TV payments and bank account information. This may also include education, occupation and even social media activities.

It may take some time before alternative data techniques catch on among community financial institutions. In 2017, the Consumer Financial Protection Bureau (CFPB) released a “Request for Information” seeking information about alternative data and the modeling techniques used to analyze them. You can find the document, which discusses the benefits and risks associated with alternative data, at

Supervisory Guidance Isn’t the Law

In a recent joint statement, the federal financial institution agencies clarified that supervisory guidance “does not have the force and effect of law.” Among other things, the agencies intend to limit the use of numerical thresholds or other “bright lines” in describing expectations, and examiners won’t criticize financial institutions for “violations” of supervisory guidance.

Please contact us for further information or ask about FinCEN creating exception to beneficial ownership rule.

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Jeff Danen
I am a partner in the Green Bay, WI, office of Hawkins Ash CPAs and joined the firm in 1998. I have extensive experience providing tax and audit services to individuals, commercial businesses and credit unions. I also provide business valuation and compilation and review services. I am a member of the firm's Audit and Accounting Committee.

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