Fasten your seatbelts for the proposed customer due diligence requirements

by. Jane Pannier

There are a lot of good safety ideas out there: wear a helmet while riding a bike, don’t stand on swivel chairs, wear sunscreen, etc. Many of these are unenforced, common sense rules, but some of them graduate into law. For example, depending on which state you live in, not wearing a seatbelt could have some serious legal consequences where once it was merely a really bad idea.

Similarly, financial institutions are subject to a myriad of good ideas that range from what the industry calls “best practices” to full-blown regulatory requirements. Customer due diligence is one of those “seatbelt” ideas that is potentially in transition from guidelines to law.

Previously, FinCEN identified what it considers to be the four pillars of effective customer due diligence. These pillars are:

  1. Identifying and verifying the identity of customers/members;
  2. Identifying and verifying the identity of beneficial owners of legal entity customers/members;
  3. Understanding the nature and purpose of the customer/member relationship; and
  4. Conducting ongoing monitoring to maintain and update customer/member information and to identify suspicious activity.

The proposed rule would incorporate each of the above pillars into the regulatory customer due diligence requirements. Since identifying and verifying the identity of customers/members (Pillar #1) is already specifically incorporated into the regulatory requirements, the proposed rule focuses on the other three pillars. Let’s take a look at the proposed changes.

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