Some commentators have called on FinCEN to allow covered financial institutions to take a non-categorical and risk-based approach to identification and verification requirements. Objections raised to a categorical requirement include: the implementation of ICP procedures for non-current beneficial owners would be too difficult; the benefits of a categorical requirement were outweighed by the costs; and increasing the number of natural persons subject to PIC procedures would increase costs, especially for institutions that rely on providers charging CIPs per capita. FinCEN believes that the categorical application of this requirement to covered financial institutions will reduce the ability of illegal actors to enter the financial system by masking their legal entities with markers indicating a low risk profile. With respect to concerns about costs and difficulties, we believe that the changes and clarifications to this paragraph described above have given financial institutions more flexibility in determining the implementation of identification and verification requirements, thereby reducing their impact. Given that financial institutions can rely on information provided by the customer in most cases, FinCEN believes that financial institutions will generally not devote significantly more resources to collecting and verifying information in all cases (subject to permitted exceptions) than to conducting a risk analysis to determine whether beneficial ownership information should be collected and verified. We are aware that financial institutions that pay the system and technology costs related to PIC procedures per capita will face increased costs to identify and verify the identity of other natural persons. However, we believe that the benefits of collecting this information, as described in more detail above and below, outweigh this additional cost. FinCEN therefore refuses to change the categorical nature of the final rule requirement. Final rules. The Final Rule adopts draft 31 CFR 1010 380(a)(2) regarding the 30-day deadline for filing updated reports, but makes some changes clarifying and revising the proposed rule to exclude updates from applicant companies. This exclusion is intended to reduce the unnecessary burdens associated with the obligation to update and is discussed in more detail in section III.B.v. in relation to 31 CFR 1010.380(b)(3), which describes the content of updated reports.

For corrected reports, the final rule of 31 CFR 1010.380(a)(3) modifies the deadline for submitting reports to correct inaccuracies to 30 days, but otherwise adopts the wording of the proposed rule with clarifying amendments. The implementation of the CSD rule would promote U.S. compliance with FATF-CSD standards and would meet outstanding public obligations. It would also allow the United States to demonstrate progress within the FATF and other international bodies, as well as bilaterally, encourage other jurisdictions to comply with FATF standards, and avoid accusations of hypocrisy due to their own non-compliance. We do not seek to quantify or monetize the extent of this potential reputation effect given the intangible nature of reputational effects, but we do assess it as significant. The United States, which is widely regarded as a global leader in the fight against money laundering and terrorist financing, is currently among a very small number of FATF members that do not meet its core standard, which requires financial institutions to identify and verify the identity of the beneficial owners of corporate accounts. We believe that this lack of full compliance with the standard that the vast majority of the rest of the world adheres to undermines U.S. leadership on illicit financing issues. In particular, the CSD Rule focuses in particular on the second component by adding a new requirement that applies to financial institutions to identify and verify the identity of the beneficial owners of all clients of legal entities at the time of opening a new account, subject to certain exclusions and exceptions. The SDC rule also addresses the third and fourth components by amending the existing anti-money laundering programme rules for the targeted financial institutions to explicitly require that these components be included in anti-money laundering programmes as a new “fifth pillar”.

Development and implementation of employee training courses. Some commentators have pointed out that we did not take into account the costs associated with the design and delivery of staff training on the new obligations of the SDC rule (as opposed to the cost to financial institutions due to employee training time, which we took into account in the RIA). In response to these comments, we have added a new section that incorporates these costs into the RIA, as described in more detail. Some commentators have asked FinCEN to provide guidance on how beneficial ownership information should be included in information exchange processes under Section 314(a) of the USA PATRIOT Act; one of these commentators asked FinCEN to report this information in itself outside the scope of Article 314(a). FinCEN does not expect information received under the beneficial ownership requirement to add additional Section 314(a) requirements for financial institutions. The rule that applies section 314(a) of 31 CFR 1010.520 does not permit the reporting of beneficial ownership information associated with an account or transaction that corresponds to a named entity. Under this rule, financial institutions are only required to search their records for accounts or transactions that correspond to a named subject and to report to FinCEN if such a match exists using the credentials provided by FinCEN. FinCEN adopts the final rule because it has identified the need for more explicit rules for covered financial institutions [170] to clarify and strengthen fixed-term contracts within the BSA regime, increase transparency and help protect the financial system from illegal use. The CDD rule will advance the objectives of the BSA by (i) improving the availability of beneficial ownership information for law enforcement agencies, federal functional regulators and SROs; (ii) Improving the capacity of financial institutions, law enforcement and intelligence services to identify the assets and accounts of terrorist organizations, drug lords and financial criminals; (iii) assist financial institutions in assessing and mitigating risks and complying with existing BSAs and related authorities; (iv) Facilitate reporting and investigations to support tax compliance and promote commitments under the Foreign Accounts Tax Compliance Act; and (v) promote consistency in the implementation and enforcement of regulatory expectations for fixed-term contracts in and within the financial sectors. The burden on a small financial institution to open the account resulting from the final settlement would depend on the number of beneficial owners of each client of a legal entity opening a new account[176], the additional time required for each beneficial owner and the number of new accounts that the small financial institution opened for legal entities over a certain period of time. At the time of its certification in the NPRM, FinCEN had very little information on which to base its estimate of any of these variables and considered it reasonable to assume that the vast majority of clients of legal entities creating accounts with small institutions were rather small enterprises with simpler ownership structures (e.g.

a single legal person directly owned by two natural persons), which gives one or two beneficial owners. In addition, FinCEN also considered that, since all covered financial institutions have been subject to the ICP rules [177] for more than 10 years and the proposed rule uses the ICP`s regulatory procedures, small institutions would be able to use these procedures to meet this requirement. Therefore, FinCEN estimated in its certification that it would take an average of 20 minutes to meet the requirements for identification, verification and beneficial ownership registration in the proposal. For the purposes of its certification, FinCEN also did not have direct data on the total number of legal entity accounts opened each year by small financial institutions and (partly on the basis of an estimate it had received from a very large financial institution of the accounts it opened each year for legal persons), FinCEN estimated that small institutions would open a maximum of 1.5 new accounts for legal entities per day. and probably less. However, as there is no statistical data on the average number of beneficial owners of legal clients of small institutions or on the number of such accounts they have created in a given period, FinCEN has requested comments on these issues. 54. FinCEN points out that this is in line with the CIP rules, which include as a client “a person who opens a new account for. (B) an entity that is not a legal person, such as a citizens` association. In such a case, it is the person who opens the account, not the citizens` association, who is the client. See, for example, 31 CFR 1020.100(c)(1)(ii)(B). Due to the above scope, FinCEN received additional data that could be used to better estimate the additional costs of opening an account.