FinCEN’s Beneficial Ownership Rule Still Causing Headaches for FIs


On May 11, 2018, financial institutions opening new accounts were required to implement greater due diligence on their customers than ever before. By law, as issued by the U.S. Department of the Treasury and the Financial Crimes Enforcement Network (FinCEN), FIs must now collect and verify the identity of their legal entity customers’ beneficial owners. The potential cost, according to FinCEN estimates, to FIs and their clients in the first year of implementation alone ranges in the hundreds of millions.

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Three months later, how are FIs faring under the new regulation? Given the level of anxiety just before the implementation (including a letter from the Independent Community Bankers of America requesting that FinCEN delay implementation for a year), it’s safe to assume that some banks are still working out the costly details.

“the rule impacts virtually any FI engaged in B2B transactions, including federally regulated banks and credit unions, mutual funds, brokers or dealers in securities, futures commission merchants and introducing brokers in commodities.”

The beneficial ownership rule

Impact and paperwork

To understand the full scope of beneficial ownership, it’s important to note that the rule impacts virtually any FI engaged in B2B transactions, including federally regulated banks and credit unions, mutual funds, brokers or dealers in securities, futures commission merchants and introducing brokers in commodities. The rule also impacts FIs’ customers, including legal entity corporations, LLCs, limited partnerships, general partnerships, business trusts, and others, formed inside and outside the U.S. Though the direct impact to individual FIs depends upon their specific risk tolerance, the rule has far-reaching impact on the industry as a whole.

In terms of what FIs need to collect, beneficial ownership acts as an addendum to previous Consumer Due Diligence (CDD) requirements. To identify beneficial ownership, FIs are now responsible for requesting and collecting the additional CDD information. Once collected, and affidavits are signed, FIs are required to verify the information provided. This ensures they meet KYC and OFAC requirements.

Risks and considerations

As FIs search for cost-effective, long-term compliance solutions, short-term fixes are necessary. In particular, high-risk areas include:

  • Defining beneficial ownership and assessing risk tolerance
  • Managing beneficial ownership checks and ongoing monitoring
  • Implementing the correct technology

Determining KYC Risk

As FIs asses their exposure and risk tolerance, they will need to work with FinCEN on how best to interpret and comply with the new regulation. They must do this in order to strike a balance between compliance and reasonable beneficial ownership processing.

Beneficial ownership maintenance

As previously stated, FIs are required to investigate applicable new account openings. However, when it comes to ongoing management of an FI’s customer base, including trigger events, the rules are more opaque. According to FinCEN, subsequent reviews need to be completed when an FI “becomes aware of information about the customer… related to assessing or reassessing the risk posed by the customer.” FIs need to carefully develop protocols for how they address the processing and re-processing of beneficial ownership information for current clients and perform maintenance on an ongoing basis.


A commonsense reaction to beneficial ownership requirements is to implement a technology solution that automates the collection and verification aspects of beneficial ownership. GIACT’s Beneficial ID® accelerates the collection and verification aspects of beneficial ownership through the only digital platform that offers collection, KYC and OFAC processing. Beneficial ID is also configurable, allowing FIs to scale collection based on their risk tolerance. For FIs looking for an immediate solution, Beneficial ID is easy implement with no interruptions or lengthy time lapses to customer onboarding.

The learn more about how Beneficial ID can help streamline beneficial ownership collection and verification, click here.

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