There’s something unfolding in the finance industry that every compliance officer ought to know about. Specifically, the latest ruling from FinCEN on verifying the legal responsible officers for a business. Now, instead of just running checks on business owner, you now have to run KYC checks on all responsible officers that own more than 25% or anyone with significant responsibility for a legal entity, including CEO, Vice President, etc.
You can read the whole story by clicking here.
Now, if you’re like a lot of compliance officers, then you’re probably thinking about this new ruling in terms of the amount of work it is going to add on to your department. Gathering that information isn’t easy, customers are already skittish about giving their own personal information up, let alone anyone they do business with.
However, according to the ruling, you must make your “best effort” to determine who the legal responsible officers are to stay within the guidelines.
Some people are saying, however, that is only applies to banks and other similar financial institutions. Make no mistake, this new FinCEN ruling applies to all depository institutions, including insured banks, commercial banks, savings associations, federally-insured credit unions, federally-regulated trust companies, U.S. agencies and branches of a foreign bank, and Edge Act corporations; securities broker-dealers; mutual funds; and futures commission merchants and introducing brokers in commodities.
In other words, if you are wondering if this ruling applies you, it most likely does.
We’ve been following this story since the announced the new ruling back on May 5th, 2016 and I’ve talked to lots of compliance officers about how this news will affect them.
So let me share with you now the top five ways this news impacts you…
1. You probably won’t be able to depend on the customer to provide you with sufficient information to meet the demands of the ruling. If you’re like most institutions, your customers are already hesitant to give you information, let alone reveal their partners and employees. Because of the plethora of reasons why a customer would provide untrue information, FinCEN will require to do a little more digging in order to see your “best effort” to abide by this new ruling.
2. You may have to revamp your Know Your Customer practices. The depth of information required by this new ruling may (most likely will) require that you restructure your current practices and procedures in order to comply. This could mean adding new software, new employees, or at the very least, training your current compliance officers to understand and abide by the new requirements of this rulings.
3. You’ll be required to perform ongoing monitoring of all legal entity customers to ensure there is no suspicious activity. FinCEN believes that by requiring ongoing monitoring, institutions will be able to detect and report any activity that seems odd or suspicious. The intent of the monitoring is to ensure that any major changes in customer activity or change in beneficial ownership is thoroughly reviewed to check for illegal or terrorist activities.
4. You may find it more difficult to do you customer due diligence. By adding on yet another layer of information that must be provided (not only for new accounts but also existing accounts), you may find it harder to comply with current CDD requirements. Not only do you need to know your the beneficial officers of a company are (with a minimum of 25% ownership) but you also need to know if there are any single individuals with significant responsibility to control, manage or direct a legal entity customer, including an executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President or Treasurer) or any other individual who regularly performs similar functions. Finding all of this information using the current solutions available may prove difficult for most institutions (specifically smaller institutions).
5. The last way this new ruling will affect you is with non-compliance fines. If FinCEN finds that you have not been abiding by their new ruling, you could be fined up to 7 figures and beyond. For example, in February of this year, FinCEN fined the Merchants Bank of California of Carson, CA $7 millions for willful violations. Such fines are sure to be fairly common place once FinCEN starts enforcing this new ruling.
There is a workaround, though. Since you’re already have KYC and CDD procedures, all you have to do is add in RealSearch.com’s Legal Entity Responsible Officer (Insert Link Here) search to your practices in order to find up-to-date and instant look-ups on millions of responsible officers in the United States.
This groundbreaking new search allows all institutions to find the legal officers and responsible entities for any business in America. Using both private and public data points (include Secretary of State and the OFAC FinCen database), this realtime search is the first of it’s kind designed specifically to provide you with the information you need in order to abide by FinCEN’s new ruling.
Bottom line? Unless you have to spend millions of dollars in new hardware, training your staff, expanding your current compliance department 10 fold, or pay millions in fines to FinCEN, you really need to check our RealSearch.com’s Legal Entity Responsible Officer search (Insert Link Here).
It might just save you a ton of money, not to mention a massive headache.