This content is sponsored by Vantiv.

Liz Crider, Vantiv

Financial transparency and security are important. FinCEN and the staffs of the Federal functional regulators and the Department of Justice agree. As such, FinCEN has determined that more explicit rules for covered financial institutions with respect to Customer Due Diligence (CDD) are necessary to clarify and strengthen CDD within the Bank Secrecy Act (BSA) regime.

In simple terms, this means, beginning May 11, 2018, financial institutions (FIs) are going to be required to better understand who their customers are and what type of transactions they are conducting. According to FinCEN, the new requirements are a critical aspect of combating all forms of illicit financial activity, from terrorist financing and sanctions evasion to more traditional financial crimes, including money laundering, fraud, and tax evasion.

How will FIs get more familiar with their customers and their transactions? Key elements to meet the minimum standard of CDD, as provided by FinCEN, include:

  • identifying and verifying the identity of customers
  • identifying and verifying the identity of beneficial owners of legal entity customers (i.e., the natural persons who own or control legal entities)
  • understanding the nature and purpose of customer relationships
  • conducting ongoing monitoring

The new requirements apply to entities, regardless of size, revenue, volume and must be implemented by May 11, 2018. There are exceptions and exclusions based on legal entity type if the structure already lends itself to the transparency the Rule is driving (i.e. publicly traded companies, sole proprietorships). Why is this so important? Europe and other jurisdictions have had similar ownership information requirements for years. Layer that with political pressure resulting from the release of the Panama Papers in 2015 and it became apparent that decisive action was required to bring the U.S. into alignment.

What do the new CDD requirements mean for PayFacs?

PayFacs should be taking steps to prepare both staff and clients for the new CDD requirements.

  • Educate sales staff on requirements — so that they can effectively communicate them to prospective clients
  • Modify external facing marketing/informational material, as appropriate
  • Update client facing applications, APIs, portals, etc. to collect additional data points for 1 control owner and up to 4 percentage based owners (and potentially more depending on your processor’s requirements)
  • Modify platform(s) to ingest, screen appropriately and retain additional data as mentioned above
  • Update AML/Credit policies to reflect new rule and requirements

Resources for more information on the new CDD requirements