Fincen moves to rewrite banks' due diligence requirements

The Treasury Department's Financial Crimes Enforcement Network is preparing to propose a rule rewriting banks' customer due diligence requirements, as required by the 2021 Corporate Transparency Act. The proposed rule was submitted to the Office of Management and Budget's Office of Information and Regulatory Affairs on Sept. 17, according to American Banker, though the notice does not disclose what changes the proposal would entail.

The rulemaking follows the administration's August decision to permanently exempt domestic companies and U.S. persons from beneficial ownership reporting requirements. That move removed a tool banks had expected to use in satisfying their customer due diligence obligations, while leaving financial institutions with their existing legal obligations to identify and verify beneficial owners. Fincen's final rule leaves foreign businesses on the hook for disclosing information about their foreign owners, but foreign companies will not have to report, update or correct U.S. company applicants and U.S. persons who previously obtained Fincen identifiers.

The resulting status quo leaves financial institutions to conduct their own anti-money laundering checks without a centralized federal database of beneficial ownership information for banks and law enforcement. Former Fincen Director Him Das said there is "an open question now as to how or whether the Treasury will amend the CDD rule in a way that helps financial institutions effectively combat financial crime." Financial regulatory agencies have also been making changes to customer-related anti-money-laundering standards; earlier this month, the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of the Comptroller of the Currency were involved in related efforts.

What remains unclear is whether Fincen's forthcoming CDD rule will reduce the burden on financial institutions to reflect the loss of the beneficial ownership database, and if so, how. The proposal's contents have not been made public, and the notice submitted to OMB does not disclose what changes the rule would entail.