Consumer Finance Litigation

In AML/BSA rule amendments published May 11, FinCEN will require "covered financial institutions" to implement new beneficial-owner identification and verification as part of their Customer Due Diligence ("CDD") and adopt risk-based supervisory procedures for their AML/BSA programs.

The Amendments require use of a prescribed Beneficial Owner reporting form, or its substantial equivalent. Though effective July 11, covered institutions have until May 11, 2018 to comply. See 31 C.F.R. § 1010.230 & App. A. FinCEN's AML/BSA requirements impose the "four pillars" of AML requirements upon "covered financial institutions" (banks and insured credit unions, broker-dealers, mutual funds and FCMs and their introducing brokers):

a. written policies, procedures and controls reasonably designed to achieve and to monitor BSA and FinCEN requirements;

b. independent compliance testing;

c. a designated BSA compliance officer; and,

d. ongoing training.

As with most compliance efforts, the rules require board-level organizational review and written approval of the AML program. They generally allow some delegation of implementation or operational elements, but not of responsibility. The new Beneficial Owner requirements are a part of FinCEN's upgrade of its AML/BSA requirements. In August of 2014, FinCEN proposed enhanced customer-identification and due diligence ("CIP/CDD") requirements for "covered financial institutions." Those provisions generally require four key elements:

a. identifying and verifying the identity of customers;

b. identifying and verifying the identity of beneficial owners of legal entity customers (i.e., the natural persons who own or control legal entities);

c. understanding the nature and purpose of customer relationships to develop risk profiles; and

d. ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.

Existing BSA requirements include: CTR filings; recordkeeping and funds "travel rules;" SAR filings; and Patriot Act § 314 responses. Last August, FinCEN proposed extending its AML/BSA rules to SEC-registered investment advisors. See T. Potter, FINCEN Awakens: Re-Proposes Investment-Adviser AML Rule, Wall Street Lawyer, vol. 20, no. 2 (Feb. 2016). That proposal remains pending. The final rule is here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2016 by Thomas K. Potter, III (all rights reserved).