Effective May 11, 2018, enhanced Customer Due Diligence (CDD) requirements will be amended for certain financial institutions. This new CDD Rule amends current AML programs and adds a pillar to the current requirements within the AML Program. These updates apply to financial institutions including Futures Commission Merchants, Independent Introducing Brokers, and Broker Dealers.
The CDD Rule required these institutions to establish and maintain written procedures that are designed to identify and verify the beneficial owners of legal entity customers. These procedures must enable the institution to identify the beneficial owners for each customer at the time a new account is opened. Furthermore, procedures must establish risk-based practices for verifying the identity of each beneficial owner identified to the covered financial institution. To summarize, the beneficial owners of legal entity customers must be identified, obtained, verified, and recorded.
The CDD Rule has resulted in amendments to the AML programs of these financial institutions adding another pillar to the requirements. Each covered financial institution are required to implement and maintain appropriate risk-based procedures for conducting ongoing customer due diligence. It must include a) understanding the nature and purpose of the customer relationship and, b) conduct ongoing monitoring to identify and report suspicious transactions and on a risk basis, to maintain and update customer information.
AML programs MUST include:
- a system of internal controls
- independent testing
- designation of a compliance officer or individuals
- responsible for day-to-day compliance
- training for appropriate personnel
- appropriate risk-based procedures for conducting ongoing CDD to understand the nature and purpose of customer relationships
- conduct ongoing monitoring to identify and report suspicious transactions, and on a risk basis, maintain and update customer information
The AML Program must include the CDD procedures and apply the same elements as the customer identification program (CIP).
A “beneficial owner” is defined as 1) an individual who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer or 2) a single individual with significant responsibility to control, manager, or direct a legal entity customer, including an executive officer or senior manager (CEO, CFO, COO, Managing Member, General Partner, or President), or any other individual who regularly performs similar functions.
These financial institutions must collect from the legal entity customer the name, date of birth, address, and social security number or other government identification number (passport number or similar information in the case of foreign persons) for individuals who own 25% or more of the equity interest of the legal entity, and an individual with significant responsibility to control/manage the legal entity at a time a new account is opened.
If you have further questions with regard to how these new requirements apply to your AML Program, please contact Mike at 630-351-8942 or Email mike@cogcpa.com.