customer due diligenceMuch has been made of the “Beneficial Ownership Requirements for Legal Entity Customers,” which went into effect July 11, 2016, with a compliance date May 11, 2018. In fact, on the surface, one could mistakenly ascertain FinCEN’s final rule related solely to beneficial ownership. Furthermore, there are indications that smaller community banks and credit unions have not yet fully embraced all aspects of customer due diligence (CDD) requirements. With that as a backdrop, we can explore the fundamental elements relative to CDD, included in FinCEN’s final rule.

All institutions must develop and implement appropriate risk-based procedures for conducting ongoing customer due diligence. This requirement includes:

  • Obtaining and analyzing sufficient customer information to understand the nature and purpose of customer relationships to develop a customer risk profile; and
  • Conducting ongoing monitoring to identify and report suspicious transactions and updating customer information, based on risk (including beneficial owners).

Furthermore, the expectation is that institutions will develop risk-based CDD procedures, policies, and processes to facilitate adherence to the expectations as mentioned earlier, and should:

  • Be consistent with the BSA/AML risk profile of the institution, with an emphasis on “higher” risk customers;
  • State procedures, authority, and responsibility for reviewing and approving changes to customer’s risk profile; and
  • Include standards for conducting and documenting analysis associated with the CDD process.

Most community banks and credit unions have aggressively addressed the beneficial ownership requirements of the final rule. However, other aspects of the final rule have seemed to receive less focus and presented more challenges.

Areas of continued diligence and opportunities for improvement include:

  • Effectively risk rating customers at account opening;
  • Consistent documentation of expected account activity (nature and purpose);
  • Active monitoring of customer accounts, particularly in the absence of an automated solution; and
  • Managing automated alerts efficiently and effectively.

As with many aspects of the BSA/AML environment, the CDD landscape is continually changing, and AML professionals continue to be challenged to meet regulatory expectations while minimizing the associated cost to their respective institutions.

CRI’s BSA/AML experts are uniquely qualified to assist in such matters to ensure our clients fully understand and appropriately embrace regulatory expectations in a cost-effective manner.