Customer Due Diligence

New FinCEN Rules Require Credit Unions to Identify all Beneficial Owners of Legal Entity Accounts

From Claire White, CUBG Deposit Services Officer

On July 11th, new FinCEN rules clarifying and strengthening customer due diligence requirements went into effect. Credit unions will have until May 11, 2018 to comply with the rules.

The new rules contain explicit customer due diligence requirements and include a new requirement to verify the identity of beneficial owners of legal entity customers (i.e. business entity members) with certain exclusions and exceptions.

Under the new rules, credit unions will use Customer Identification Program (CIP) procedures, similar to those used for individuals, to identify the beneficial owners of a legal entity. The credit union may rely on copies of the identification documents used to identify the beneficial owner and may rely on information provided by the entity, as long as it has no knowledge of facts that would call into question the reliability of the information.

Legal entity customers are defined in the final rules as a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account. Sole proprietorships and unincorporated associations are not included in the definition, even if those such businesses may file with the Secretary of State in order to, for example, register a trade name or establish a tax account.

The final rules also include a list of entities that are not included as legal entity customers under the rules. The exclusions begin on page 17 of the link included in this article.

The final rules define beneficial owners as each of the following:

  • Each individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25% or more of the equity interests of a legal entity customer; and
  • A single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (e.g. a CEO, CFO, COO, Managing Member, General Partner, President, Vice President, or Treasurer) or any other individual who regularly performs similar functions.
  • If a trust owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25% or more of the equity interests of a legal entity customer, the beneficial owner(s) for the purpose of the final rules is the trustee.

CU Business Group recommends credit unions review their Bank Secrecy Act (BSA) procedures and other procedures related to the opening and monitoring of business accounts to ensure compliance with the new Customer Due Diligence (CDD) rules before May 11, 2018.

We have created the following list of action steps to help you get started:

  1. Review your current account opening, monitoring, and any related BSA procedures for business accounts.
  2. Update the procedures if necessary.
  3. Contact your form vendor regarding a Certification of Beneficial Owner(s) or use the form provided in Appendix A of the Customer Due Diligence Requirements at account opening or when significant changes occur.
  4. Determine which areas of operations will be affected by the changes and provide training to staff.
  5. Inform internal and external auditors of the changes.

You can view the final rules on Customer Due Diligence Requirements for Financial Institutions online.

If you have questions about FinCEN’s final rules on CDD for legal entity customers, contact CUBG’s deposit team at 866-484-2876, or


Connecting with Business Members…Via Regulations?

From Larry Middleman, CUBG President/CEO

Today, credit unions face a unique opportunity to make major strides in the business lending market. Early in 2016, the National Credit Union Administration (NCUA) released a massive overhaul of its Member Business Lending (MBL) rule, upending the agency’s long-held “prescriptive-based” approach and introducing new, more flexible “principles-based” standards.

Highlights of the final rule include:

  • Ability to waive personal guarantees
  • Removal of explicit loan-to-value limits
  • Lifting of limits on construction and development (C&D) loans
  • Clarification that non-member business loan participations do not count against the MBL cap
  • Elimination of the onerous waiver process

According to the NCUA, “it will be up to each credit union to manage MBL risks through their own policies and procedures.”

Yet, in the immortal words of Dr. Ian Malcolm (as played by Jeff Goldblum in the original Jurassic Park film), “Yeah, yeah, but your scientists were so preoccupied with whether or not they could that they didn’t stop to think if they should.”

Nowhere in the new rule is this cautionary advice more relevant than in the personal guarantee provision, which has already been implemented effective May 13, 2016 (all other provisions will go into effect on January 1, 2017).

The appropriate use of the personal guarantee waiver is among the greatest opportunities credit unions have to meaningfully connect with their business members. But it is important to use this new-found flexibility judiciously, and not simply for the sake of “being competitive” with the bank up the street. Most business loans still warrant the obtaining of personal guarantees from all owners, unless there are mitigating factors and offsetting strengths such as strong collateral positions, significant business cash flow, and a long-term track record of success.

Thanks to the NCUA’s new, more flexible approach, the new MBL rule is a tremendous opportunity for credit unions to serve members their way, in accordance with local market conditions, staff expertise and resources, and their individual tolerance for risk.

For additional questions on the new MBL regulations and how your credit union can connect with business members, contact us at