May 30, 2018
Authored by: Barry Hester
In a unique administrative ruling under delegated “exceptive” authority, on May 16, 2018 FinCEN issued relief from its new beneficial ownership requirements through at least August 9, 2018, for “certain financial products and services that automatically rollover or renew (i.e., certificate of deposit (CD) or loan accounts) and were established before the Beneficial Ownership Rule’s Applicability Date, May 11, 2018.”
FinCEN acknowledged in its notice that “some covered institutions have not treated such rollovers or renewals as new accounts and have established automatic processes to continue the banking relationship with the customer.”
The exception is effective retroactively from May 11, 2018 and expires on August 9, 2018. FinCEN added that it was considering whether additional relief may be appropriate for such products and services established prior to May 11, 2018 and expected to rollover or renew thereafter.
We will explore how we got here, but first, some practical considerations:
- Institutions that have already set into motion new systems, procedures, and communications to collect this info on renewable loans and CDs established prior to May 11 will need to decide whether to discontinue these measures, or alternatively to conclude there is now greater flexibility for handling customers that do not adhere to them – e.g., by failing to submit a completed ownership certification form. The prevailing view among our clients seems to be the latter.
- Institutions that were still rushing to implement such measures will need to decide whether to put these plans on hold or to continue to develop them as to loans and CDs established prior to May 11, 2018. The preference within the industry in this regard appears to be a function of how far along these plans are into production, and the extent to which they constitute separate solutions specific to these existing account types.
- Any discussions with examiners and auditors about any changes to implementation plans in light of this release should be direct and documented. We would encourage institutions to think broadly and generously about the purpose of these rules and the BSA generally, and what risks to the bank (such as sanctions exposure or fraud) might be mitigated by the spirit if not the letter of FinCEN’s new rules. OFAC’s strict liability framework for doing business with sanctioned parties is unaffected by the relief afforded by FinCEN’s May 16 notice.
- Institutions should consider ways to continue socializing their views to FinCEN, through trade associations or otherwise, as this interim relief appears directly responsive to industry feedback such as that provided in an April 27 hearing held by the House Financial Services Committee (e.g., “. . . there is no reason to believe that an auto-renewal is evidence that a change in beneficial ownership might have occurred. The FAQ 12 guidance is further complicated by the fact that these products include contractual provisions requiring the financial institution to auto renew them without interruption.”)
Let’s revisit how this unfolded as a regulatory matter.
The supplemental FAQs issued by FinCEN on April 3, 2018 provided certain interpretations of its own final rules, originally published on May 11, 2016, including that it believed a bank established a “new account” each time an autorenewing loan or CD renewed (see FAQ 12). FinCEN opined at that time on ways a bank could comply with the Beneficial Ownership certification requirements implicated by the opening of a “new account” for a legal entity customer in such cases, namely by (1) providing the required information and certification on FinCEN’s new form or its equivalent once and (2) agreeing at that time to notify the bank of any change in such information going forward. FinCEN’s view then was that a customer’s agreement to notify a bank of any changes in its beneficial ownership information can be considered a “certification” of this information for purposes of subsequent rollovers of renewable products.