Fincen’s Final AML Rule – New CDD

July 5, 2016

In yet another example of the constantly changing nature of anti-money laundering (AML) regulations, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has recently published the final rule that will fall under the Bank Secrecy Act (BSA).

The rule codifies new customer due diligence (CDD) requirements meant to clarify and solidify previous CDD requirements for “covered institutions”—banks; mutual funds; securities dealers or brokers; futures commission merchants; and commodities brokers. Coming into effect July 11, 2016, the final rules must be complied with by May 11, 2018, or these institutions could face penalties for non-compliance.

By instituting this new rule, FinCEN is aiming to close a gap in its regulations involving beneficial ownership. Financial institutions are not currently required to know or verify the identities of those owning or controlling their legal entity customers, a gap that FinCEN says helped criminals wanting to conceal the proceeds of crime to access the financial system anonymously.

FinCEN holds that there are four main components of CDD, all of which are now AML program requirements with the introduction of the final rule:

  1. Customer identification and verification
  2. Beneficial ownership identification and verification
  3. Understanding the nature and purpose of customer relationships to develop a customer risk profile
  4. Ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating customer information

So what are the implications for covered financial institutions? There will certainly be a drain on time and resources, as organizations will need to become familiar with the new rule and what it means for the business; implement or revise forms, policies and procedures as required; refresh its customer intake and maintenance systems; train employees on the new rule; and incorporate new categories into the cash aggregation and transaction monitoring systems, for example.

The implications for the economy are expected to be significant as well. Based on an analysis conducted by FinCEN, the final rule may impact the economy to a tune of $100 million or more per year. To justify this cost, FinCEN performed a breakdown analysis to estimate the benefits of the final rule. Their conclusion was that the rule only needs to reduce illicit activity by 0.6% to achieve a positive net benefit, and the U.S. Treasury Department is confident that the changes will reduce illicit activity by far more than this.

To be compliant with the final rule, covered financial institutions must be proactive and take the appropriate steps to fulfill their AML requirements.  Contact us for more information about how we can help you meet your AML requirements.

About Andrew Simpson

Andrew Simpson (LinkedIn | Twitter) is Chief Operating Officer at CaseWare RCM and has more than 20 years of experience building businesses in the fields of information systems audit and security, data analytics, Anti-Money Laundering and forensics. He is a regular contributor to conferences and a recognized thought leader in financial crime management.

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