U.S. Beneficial Ownership Rule: Two Exceptive Relief Rulings in the First Week

Carol Beaumier, Senior Managing Director Risk and Compliance

On the same day – May 11, 2018 – that FinCEN’s Customer Due Diligence rule, commonly referred to as the beneficial ownership rule, became effective, FinCEN issued exceptive relief from the beneficial ownership requirements for premium finance lending products that allow for cash refunds.

Premium finance lenders provide short-term loans to businesses to cover their annual insurance premiums. These lenders generally engage directly with insurance agents and brokers and not with the actual borrower. FinCEN decided to provide exceptive relief for such borrowing relationships given their perceived low risk, considering the restricted usage of the funds and the fact that cash refunds typically are issued due to routine corrections of inadvertent errors that are often required by state law.

FinCEN cautioned that, as with any other exceptive relief, it may rescind or modify this relief in the future if it deems warranted.

Just a few days later, on May 16, 2018, FinCEN issued a 90-day exceptive relief ruling for certain legal entity customers with products (loans or deposits) subject to automatic rollover and renewal. The relief is effective retroactively to May 11, 2018, will expire on August 9, 2018, and applies to financial products that were established prior to May 11, 2016, the date the Customer Due Diligence rule was enacted.

In granting the 90-day relief, FinCEN acknowledged that some financial institutions have not treated such rollovers and renewals as new accounts, as intended by FinCEN’s rule, and are unprepared to deal with the beneficial ownership requirements for these accounts. In addition, FinCEN noted that its 90-day relief may be extended, modified or revoked at FinCEN’s discretion.

These rulings highlight the nuts-and-bolts practicalities – as mentioned in prior blog posts – of implementing the beneficial ownership requirements. The likelihood of additional exceptive relief rulings seems high as covered financial institutions encounter additional implementation challenges.

For banking organizations, it is also important to note that on May 11, 2018, the FFIEC issued new examination procedures for compliance with FinCEN’s Customer Due Diligence rule.

Update – For additional information on the implementation of the U.S. Beneficial Ownership Rule, read my article, “Countdown checklist to compliance with FinCEN’s Customer Due Diligence Rule,” published in Thomson-Reuters Regulatory Intelligence.

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