FinCEN Publishes an Administrative Ruling Regarding Customer Identification Program and Customer Due Diligence Requirements for Designated Beneficiaries of Individual Retirement Accounts

Last week was the 2024 Regulatory Compliance School for America’s Credit Unions. It was my first time attending in person and presenting. I have to say it was spectacular. I was able to speak with so many compliance professionals and hear other presentations as well. It was a great time, and I want to say a big CONGRATULATIONS to our new group of NCCOs!

While I am glad to be home, I am sad to say that I missed the Bank Secrecy Act (BSA) presentation (which I really wanted to watch) due to my flight home leaving before that session. Consequently, I figured that I should write about a BSA topic for today’s blog.

On March 15, 2024, the Financial Crimes Enforcement Network (FinCEN) published an administrative ruling regarding customer identification program (CIP) and customer due diligence (CDD) requirements for designated beneficiaries of individual retirement accounts (IRAs).  The rulemaking discusses a specific factual scenario – a Broker-Dealer (which is a “financial institution” under FinCEN rules) maintains an IRA account on behalf of an individual, with a nonprofit organization being named as beneficiary. When the individual dies, the Broker-Dealer asks the nonprofit organization to open a new IRA account in order to receive the funds. The administrative ruling states that the Broker-Dealer must follow CIP and CDD requirements regarding the nonprofit organization when opening the new IRA account.

You may be asking yourself, what does this rule mean for credit unions and their members? Great question! I am glad you asked.

Credit unions are also considered “financial institutions” under the FinCEN rules and must comply with CIP and CDD requirements when opening new accounts for legal entities.

Let’s quickly review a few rules and terms.

The CIP Rule is in section 1020.220 of the FinCEN regulations which states:

“The CIP must contain procedures for opening an account that specify the identifying information that will be obtained from each customer to the extent reasonable and practicable. The procedures must enable the bank to form a reasonable belief that it knows the true identity of each customer…”

NCUA also requires compliance with CIP requirements in section 748.2(b)(2). Additionally, section 1020.100(b)(1) defines, “customer” to mean “a person that opens a new account.”

The CDD Rule is in section 1010.230 of the FinCEN regulation which provides the beneficial ownership requirements for legal entity customers requires a credit union to “establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program required under 31 U.S.C. 5318(h) and its implementing regulations.” This portion of the CDD Rule requires credit unions to identify and verify the identity of certain beneficial owners of legal entity customers when opening new accounts. “Legal entity customers” include, among other entities, nonprofit corporations or similar entities that have filed their organizational documents with a state authority as necessary.

Applying these terms and rules means that a credit union in a similar situation (i.e. requiring a legal entity that was named as beneficiary to open a new account to receive the funds) would also have to follow the CIP and CDD requirements. While this may not be a surprising outcome given that the requirement to perform CIP and obtain beneficial ownership information are not new for legal entity “customers” (i.e. accountholders), it is still an important reminder for credit unions and its members when naming a designated beneficiary to an account.

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