As of May 11, 2018 Introducing Brokers and Futures Commission Merchants will be required to have Customer Due Diligence procedures in place.  These procedures must include obtaining information for all owners of legal entities opening accounts.  These changes and updates must be included in AML compliance policies and procedures.

These regulations were intended to clarify,strengthen and increase the transparency of the Customer Due Diligence rule.

Key procedures now included:

• Ascertain and verify customer identities
• Ascertain and verify the identities of ultimate beneficial owners
• Analyze the nature of the customer relationship to develop a customer risk profile
• Monitor customer transactions and, on a risk basis, maintain and update customer information

In order to establish the identity of ultimate beneficial owners of the legal entity customer, there are two independent tests for qualification purposes.

1. Financial institutions must collect information in order to verify the identity of each individual who directly or indirectly owns 25% or more of the equity interests of the legal entity customer.
2. Financial institutions must collect information in order to verify the identity of at least one individual with significant responsibility to control, manage or direct a legal entity customer.  This test is separate from and in addition to the requirement of identifying all beneficial owners.

Firms must not only rely on customer self-identification, but collect documents and information that is sufficient to verify the identities of these individuals.  This may entail requesting personal identification information such as date of birth, copies of government issued identification and even social security numbers.

Furthermore, customers will need to certify by signature the information they have provided is accurate and will be obligated to provide updates on an ongoing basis.  Additionally, beneficial owners must undergo OFAC screening.

FinCEN has provided guidance and included FAQs to assist with the CDD Rule.  Click here for FAQs.

If you have questions or need assistance with these additional procedures, please contact mike@cogcpa.com or call 630-351-8942.