Lender Compliance with New Customer Due Diligence Rules

Lenders should have completed implementation of procedures for compliance with new regulations that become effective on May 11, 2018, informally known as the “Know Your Customer” requirements. Those regulations focus primarily on identifying the beneficial ownership of financial institution accounts. Lenders should not let those beneficial ownership regulations overshadow the new customer due diligence (CDD) obligations that the regulations also require.

For more than thirty years, the attorneys at Rosenberg Martin Greenberg LLP have worked with lenders in the mid-Atlantic region, assisting on various due diligence matters relating to loans and the banks’ customers. Our attorneys have prepared this summary of the new CDD regulations as a guide for lenders as they implement new beneficial ownership and due diligence business practices for those regulations.

Institutions Affected by the New Customer Due Diligence Regulations

The BSA and its regulations apply to federally regulated and insured banks and credit unions. They also apply to mutual funds, securities broker/dealers, and commodities and futures brokers and merchants. The regulations exempt some specific institutions, including state-regulated banks, foreign financial institutions in certain jurisdictions, bank holding companies, and investment company entities. The exempt institutions are typically covered by other regulatory bodies and jurisdictions.

Customer Due Diligence Information

Lenders that are covered by the new CDD regulations are required to collect and maintain information about their client corporations, partnerships, limited liability companies, and other legal entities to further the anti-money laundering (AML) purposes of the law. That information includes an identification of the individuals that own a 25% or greater interest in an entity client, and a list of the individuals that can exercise “significant responsibility to control, manage, or direct” the entity. For certain types of entities that have several individuals in an entity structure and can exercise management authority, the regulations do allow the entity to list only one person who has that authority.

Ongoing Customer Due Diligence Compliance

The final regulations impose a continuing compliance obligation on lenders to develop and maintain a strong anti-money laundering compliance program that collects CDD information when an account is opened, and that updates all ownership and control information throughout the life of the account. These ongoing compliance obligations require lenders to develop customer risk profiles and to monitor, identify, and report suspicious transactions.

Customer Due Diligence as the “Fifth Pillar”

The new CDD regulations are in addition to and not in lieu of the four core elements of a lender’s anti-money laundering control systems. Those four elements continue to include:

  • internal controls to verify compliance;
  • independent compliance testing;
  • designation of an officer who is responsible for managing day-to-day compliance; and
  • regular employee training.

Contact the Attorneys at Rosenberg Martin Greenberg Today

The Baltimore-based attorneys at Rosenberg Martin Greenberg LLP have analyzed the new anti-money laundering regulations and are poised and prepared to work with their lending clients to verify their compliance with all CDD and other evolving aspects of the law. We represent lenders in Maryland, Delaware, and throughout the mid-Atlantic region in all areas of their loan. Please contact our Baltimore office for answers to specific questions about the new CDD regulations and to speak directly with one of our attorneys.

Additional Resources:

  1.  2018 Customer Due Diligence Requirements, It’s Not Just About Beneficial Ownership. https://www.americanbanksystems.com/2018-customer-due-diligence-requirements-its-not-just-about-beneficial-ownership/
  2. Bank Secrecy Act. https://www.irs.gov/businesses/small-businesses-self-employed/bank-secrecy-act