The Clearing House (TCH) submitted a letter to the federal banking agencies expressing concerns with their implementation of FinCEN’s customer due diligence rule, which was finalized in May 2016. FinCEN’s rule includes a requirement that financial institutions identify and verify the identity of beneficial owners of legal entity customer, and defines a beneficial owner to include one who owns “25 percent or more of the equity interests of a legal entity customer.” The letter highlights public reports that the agencies intend to enforce a lower, 10 percent equity threshold in “high risk” cases and that examiners have communicated as much to banks, which is in direct opposition to the 25 percent equity threshold established by the rule. TCH’s letter argues that: (i) in the final rule, FinCEN expressly declined to implement a 10 percent equity threshold and specified that financial institutions are to determine whether to collect such information at a lower threshold; (ii) the agencies have no independent regulatory authority under the BSA to implement such a requirement; and (iii) even if the agencies’ safety and soundness authority were to be used to implement such a requirement, it would be subject to the notice and comment requirements under the Administrative Procedure Act. Finally, the letter urges the agencies to adopt exam requirements that conform fully with FinCEN’s final CDD rule.
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