On September 29, 2022, the Financial Crimes Enforcement Network (FinCEN) released the long-awaited final rule concerning beneficial ownership information (BOI) reporting requirements. The release includes a 330-page final rule document and fact sheet. This important release serves as the first step in the formation of the Beneficial Ownership Secure System (BOSS) whereby legal entities’ beneficial owner information will be stored. As the fact sheet states, the intent of the rule and forthcoming database is to “enhance the ability of FinCEN and other agencies to protect U.S. national security and the U.S. financial system from illicit use and provide essential information to national security, intelligence, and law enforcement agencies; state, local, and Tribal officials; and financial institutions to help prevent drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States.” The effective date of the new rule will be January 1, 2024. The rule fact sheet highlights the key elements of the BOI reporting rule that include defining the following: reporting companies, who qualifies as a beneficial owner, company applicants, beneficial ownership information reports, timing, and next steps for fully implementing the Corporate Transparency Act’s (CTA) BOI requirements.

The criteria to determine reporting companies and beneficial ownership remains largely unchanged from the existing beneficial ownership requirements contained in the final Customer Due Diligence Rule (CDD Rule) that financial institutions have been required to adhere to since May 2018. A significant change in this rule is the requirement for the reporting company to provide company applicant information. The fact sheet defines a company applicant to be an “individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States” and/or “the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.”

Beneficial ownership information reports to be filed with FinCEN will require reporting companies to identify the company and report the name, date of birth, address, and acceptable identifying information for all beneficial owners and company applicants. The reporting company will also be required to provide an image of an acceptable identification document containing a unique identifying number and the issuing jurisdiction to support the identifying information provided for each beneficial owner and company applicant. The inclusion of company applicant information and the addition of a document image to support the information provided for both beneficial owners and company applicants is a notable change to existing beneficial ownership requirements that financial institutions adhere to today.

As stated above, this rule has an effective date of January 1, 2024. Reporting companies created after this date will be required to file their initial BOI reports within 30 days of creation or registration. A grace period of one year, or until January 1, 2025, has been given for existing reporting companies to file their initial BOI reports with FinCEN. Reporting companies will have 30 days from the date of determination of an inaccuracy or an event that requires a change to the filing to submit an amended filing.

In conclusion, while the release of the rule is an important first of three steps to fully implement the requirements of the CTA, questions still remain as to what might change for financial institutions. FinCEN points out that the next step in the implementation of the rule will be deciding “who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is secured and protected.” The final step is the clarification to the CDD rule. Financial institutions will undoubtedly want to know if this will eliminate the requirement and reduce the burden of collecting beneficial ownership information during their onboarding processes. They will also want to know what their role in verifying, utilizing, or reporting discrepancies of beneficial ownership information will be. This release seems to offer a welcome change in moving the onus of collecting and reporting beneficial ownership information from financial institutions to FinCEN and reporting companies; however, there has been no indication that financial institutions will be relieved of any compliance requirements just yet. Financial institutions should continue to monitor for additional FinCEN releases and guidance regarding beneficial ownership requirements.

If your financial institution would like to discuss developing or enhancing its policies, procedures, and monitoring processes related to beneficial ownership or any other BSA/AML/OFAC issues, please contact Stout today.

Authors: Deborah McLeod and Steven Bunn