A new white paper looks into the coming beneficial ownership regulations and how they will impact the ways in which financial institutions collect and manage customer information
Among the number of rules govern that U.S. banks and other financial institutions, the most impactful may be connected to beneficial ownership and the collection and maintenance of this information.
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued its final version of the beneficial ownership rule in September, implementing reporting requirements under the Corporate Transparency Act of 2021 (CTA), the Anti-Money Laundering (AML) Act of 2020, and the National Defense Authorization Act of 2021. The new beneficial ownership rule will take effect on January 1, 2024.
The definition of a beneficial owner is an individual that, either directly or indirectly, has a significant ownership interest in a company. The rule itself — even down to the amount of ownership that is significant — has been subject to hours of debate, exhaustive legislation, comments by professionals and a lot of effort by regulators.
As a significant part of the rule, it is important to determine exactly what ownership information needs to be collected, where it should be stored, which entities should have access to it, and how such information should be used. Each decision carefully balances the public need for that information and screening with the individuals’ right to privacy.
The dive deeper into the all the nuances of the rule and its implementation, the Thomson Reuters Institute and Thomson Reuters Regulatory Intelligence have published a new white paper, The Beneficial Ownership Rule: A shift in policy, that looks at both the history and the potential impact of the new rule.
The beneficial ownership information reporting rule finalized earlier [in 2022] is a major step forward in unmasking shell companies and protecting the U.S. financial system from abuse by money launderers, drug traffickers, sanctioned oligarchs, and other criminals.
Over the course of 2023, it will be incumbent upon banks, financial institutions, and other entities to understand the obligations created by regulators as they implement the beneficial ownership rule, which was designed to rein in the use of shell companies to mask illicit transactions.
Following the issuance of the final version of the rule in September, Treasury issued its much-anticipated proposal on which entities will have access to the collected beneficial ownership data on December 15, which may increase compliance burdens on financial institutions. Comments on the proposed access rule are due by February 13, 2023.
“The beneficial ownership information reporting rule finalized earlier [in 2022] is a major step forward in unmasking shell companies and protecting the U.S. financial system from abuse by money launderers, drug traffickers, sanctioned oligarchs, and other criminals,” said FinCEN Acting Director Himamauli Das in announcing the proposed access regulations. “In this next step, the proposed rule would provide the highest standards of security and confidentiality while ensuring that the new beneficial ownership database is highly useful to law enforcement agencies.”
The proposal was made under a provision of the AML Act that mandated the creation of a national registry of information regarding the individuals behind companies that are registered or doing business in the United States. Financial institutions had initially hoped that the new registry might relieve them of their obligation to collect such data when they bring on new clients, or otherwise ease their customer due diligence burden.
While there is more to come regarding the beneficial ownership rule, thus far the situation has not yet provided the relief that financial institutions hoped for. As 2023 progresses and there is further clarification, it is possible that the anticipated relief will come to light and the compliance burden will shift away from the financial institutions.
You can access the new white paper, “The Beneficial Ownership Rule: A shift in policy”, from the Thomson Reuters Institute and Thomson Reuters Regulatory Intelligence by filling out the form below: