Some banks retain beneficial-ownership scrutiny threshold as regulators fan questions about U.S. rule

Some banks are moving forward with plans to collect beneficial ownership information at the 25 percent threshold to comply with the U.S. Treasury’s new customer due diligence rule, despite remarks by a U.S. regulatory official on Monday that surprised bankers by suggesting they must look more deeply at high-risk accounts. Banks also are anxiously awaiting promised regulatory guidance aimed at clarifying muddled expectations, compliance officers said Tuesday at an anti-money laundering conference.

“We’ve decided 25 percent is where we’re going to go,” Joe Soniat, AML officer at Union Bank and Trust, said during a panel at the Las Vegas event held by the Association of Certified Anti-Money Laundering Specialists (ACAMS). The panel was monitored via webcast and bankers and consultants were interviewed after.

The rule, part of a U.S. push to lift the corporate veil on legal entity account holders so that criminals cannot escape scrutiny, was issued in May 2016 and comes into force in May 2018.

A key element of the rule revolves around collecting information about the true, or “beneficial” owners of entities, and seems to require that identities of people owning 25 percent or more of a legal entity be recorded.

However, the degree to which the 25 percent figure will satisfy regulators came into question on Monday, more than 16 months after the rule was issued. A senior official with the Federal Reserve Board of Governors, Suzanne Williams of the supervision and regulation division, told thousands of bankers Monday that they actually need to drill below 25 percent for “high-risk” customers.

Williams added that banks that have historically collected at a 10 percent threshold cannot “roll back” requirements and slide to the rule’s 25 percent figure.

Andrea Sharrin, a policy official at Treasury’s Financial Crimes Enforcement Network (FinCEN), which issued the rule, expressed agreement with Williams’ interpretation, raising its significance for the industry.

Banks must consider portfolios

Ally Financial also has opted to use the 25 percent figure, said Megan Davis Hodge, anti-money laundering compliance officer for Ally.

It considered drilling down to 10 percent ownership under certain circumstances, “but as we discussed it and really thought through the process we ultimately came to the conclusion that 25 percent was reasonable and that we did not have clients that posed such a level of risk that we felt that going down deeper made sense,” she said.

However, when making their decisions, other banks should begin by understanding their client portfolios and having “real, thoughtful” conversations, she said.

“I personally don’t think you can say ‘We’re only doing 25 percent without any kind of analysis and I don’t think it makes sense to say ‘Fine, I will automatically go down to a lower level for high-risk customers,’ because not all high-risk customers are created equal,” she said.

It is important to reach a position that is “makes sense” and “document why it’s the right level,” and to avoid adopting another bank’s approach and “think it’s going to be a precise fit,” she said.

“I personally would be very disappointed if it became a de facto expectation that even for low-risk customer types… if you score them high under your client risk scoring there’s an automatic expectation that you’re going down to 10 percent,” Davis said.

But banks may benefit from collecting information beyond what is used to comply with the rule.

For riskier customers like money services business and private label ATMs, Union Bank and Trust requires they complete questionnaires “and we’re going to update them to ask beneficial ownership information that may go beyond the 25 (percent mark), but we’re just going to document the 25 (percent owners) in the system,” Soniat said.

“We’ll have the other items as reference in the due diligence information to attach to the customer,” he said.

Document decisions

Documenting decisions “every step of the way is the way you have to do it and explain it to the regulators when they come in your shop why you did it this way,” said Anna Rentschler, who manages the enterprise-wide AML unit of Central Bancompany, a bank holding company.
Even for riskier clients, factors that act as “mitigants” might make the 25 percent figure appropriate, said Rentschler, whose company also settled on that number.

She added that when she was in Washington recently, she was told that “a lot” of banks are currently using the 10 percent threshold “because of the cease-and-desist orders they were previously under.”

The banks currently using the 10 percent figure are concerned that the extra scrutiny they give customers puts them at a competitive disadvantage because people will prefer banks that use a 25 percent threshold, “but that is just something they have to live with,” Rentschler said.

Bankers react to rule’s uncertainty

Some bankers were confused and expressed irritation following the regulators’ unexpected remarks on Monday. Many were well into the process of preparing for the rule May 2018 implementation deadline and had used a 25 percent figure across the board regardless of risk because they thought that was what the rule required.

It is perhaps telling that when the audience of the ACAMS conference was polled on Tuesday regarding how “helpful” regulators had been as banks prepared to comply with the rule, 65 percent replied “not helpful,” 31 percent said “somewhat helpful,” and just 4 percent chose the “very helpful” option.

In addition to uncertainty over the beneficial ownership threshold, permitted exemptions were among other issues worrying compliance officers.

Some examiners are telling the banks they supervise that the ownership threshold must be risk-based, while others are taking a wait- and-see approach, compliance officers and other experts say.

FinCEN, the banking regulators and Wall Street’s Financial Industry Regulatory Authority, have all vowed to provide additional guidance prior to May 2018.

None has offered a more specific timetable, however, and bankers say they need reliable answers now.

Published 28-Sep-2017 by
 Brett Wolf, Regulatory Intelligence

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