More than ever, the financial services industry is under the spotlight to tackle issues like money laundering, tax evasion, and terrorist financing. To step up transparency, the Corporate Transparency Act (CTA)—part of the U.S. Anti-Money Laundering Act of 2020—has introduced new rules for certain businesses. These rules require them to share Beneficial Ownership Information (BOI) with FinCEN (the Financial Crimes Enforcement Network).

So, what does this mean for financial institutions (FIs)? Let’s break it down.

With the results of the 2024 U.S. elections, there’s growing clarity on the direction of financial regulations like the CTA. While no substantial changes to the CTA’s requirements have been reported post-election, updates could arise as new leadership evaluates ongoing financial crime prevention initiatives. For now, FIs should continue to prepare to incorporate BOI data as mandated by the U.S. Anti-Money Laundering Act of 2020.

Under the CTA, U.S. companies must disclose beneficial ownership information to FinCEN, covering any individual with significant control or at least 25% ownership. While FIs aren’t required to submit BOI reports directly, they play a crucial role by integrating this information into their Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols. This enables FIs to bolster financial crime defenses and streamline compliance.

FinCEN’s centralized BOI database will be accessible to law enforcement and authorized entities, including FIs, facilitating regulatory compliance and customer verification.

Since 2018, FIs have collected beneficial ownership information under the Customer Due Diligence (CDD) Rule. With the centralized BOI framework, FIs can now access verified ownership data, offering benefits like:

• Enhanced KYC Compliance:  FinCEN’s BOI data supports accurate customer ownership verification.
• Strengthened AML Efforts:  BOI data aids in detecting shell companies and complex structures often used for illicit activities.
• Improved Risk Assessment:  Access to BOI data enables better risk management, particularly for anonymous or high-risk entities.

FIs should know which entities are required to submit BOI reports to FinCEN, as it affects customer due diligence. Required filers include:

• Domestic Companies:  U.S.-based entities, such as LLCs and corporations.
• Foreign Entities:  Foreign businesses operating in the U.S.

Exemptions include publicly traded companies, certain regulated FIs, and inactive entities.

BOI reports must include:

• Full legal names of beneficial owners
• Date of birth
• Current residential address
• Government-issued ID (e.g., passport or driver’s license)

This verified data repository will streamline FIs’ onboarding and ongoing monitoring of customer/member data, aiding compliance processes.

Although FIs won’t file BOI reports directly, they must incorporate BOI data into several core compliance functions:

1. Enhanced Due Diligence

FIs need to integrate BOI data to verify customer ownership and monitor changes.

2. Streamlined Onboarding

Centralized BOI data reduces redundant data collection and speeds up onboarding.

3. Increased Regulatory Oversight

With a heightened regulatory focus on shell companies, FIs can expect closer audits. BOI data access will support compliance documentation.

4. Improved Risk Management

With BOI data, FIs can enhance risk assessments, particularly for high-risk or foreign entities.

Businesses formed before 2024 must file their initial BOI reports by January 1, 2025, while new entities from January 1, 2024, must file within 90 days of registration. FIs should be ready to integrate BOI data access into compliance processes by 2025.

FIs can prepare for BOI data integration by:

1. Updating KYC/AML Policies

Revise policies to incorporate FinCEN’s BOI data.

2. Investing in Technology

Ensure systems can securely access and utilize BOI data.

3. Training Staff:

Educate teams on effectively leveraging BOI data in compliance processes.

Proactive Client Communication: Inform clients of BOI requirements to promote data accuracy and transparency.

By leveraging Quinte’s domain expertise and Service Desk specialists, FIs can better manage their beneficial ownership reporting obligations, reduce compliance costs, minimize manual errors, and ensure continuous compliance with regulatory requirements.

1. Beneficial Ownership Data Collection and Verification

• Manage Data
• Use verification Tools
• Document Management

2. Dynamic Risk Scoring and Ongoing Monitoring

• Risk Assessment
• Ongoing Monitoring
• Alerting and Escalation

3. KYC and Compliance Management

• Improve KYC/AML Processes
• Review Sanctions and PEP Screening

4. Enhanced Data Enrichment and Analysis

• Data Aggregation and Enrichment
• Advanced Analytics
• BOI Reports for use and submission to Regulatory Authorities
• Compliance with Reporting Standards

5. Audit Trail and Documentation Management

• Comprehensive Audit Trails

FIs must plan now to address these regulatory requirements, which will impact on most of their customers/members. Proactively managing these changes is critical to maintaining compliance and operational efficiency. Contact Quinte today and explore how our Service Desk can produce impactful results for your FI.

– by Ankit Maharaj Singh
Senior Vice President, Strategic Growth