On May 11, 2018, compliance with the beneficial ownership rule became mandatory. In accordance with the rule, a covered financial institution must verify, at the time a new account is opened, the beneficial owners opening the account on behalf of a legal entity customer. For purposes of the rule, any rollover or renewal of an existing account is deemed to be an opening of a “new” account. Despite the clarity of the regulation, many financial institutions are not certain how they are to comply with the beneficial ownership requirements when many renewals of loan accounts and rollovers of certificates of deposit (CDs) are automated.
On May 11, 2018, the beneficial ownership rule became fully effective. While the rule was finalized on July 16, 2016, compliance was not mandatory until May 11, 2018. The delay in implementation was to permit covered financial institutions to ready their BSA/AML compliance programs.
In accordance with the rule, a covered financial institution must verify, at the time a new account (loans, deposits, etc.) is opened, the beneficial owners opening the account on behalf of a legal entity customer. If there are multiple layers of legal entities, the covered financial institution is required to look through each layer to identify the beneficial owners.
A “beneficial owner” is defined as any natural person who (i) owns 25 percent or more of a legal entity and (ii) controls the legal entity. The covered financial institution must identify at least one beneficial owner who owns 25 percent or more of the legal entity, but is limited to naming a total of four natural persons. There is no such limitation for beneficial owners that may control the legal entity customer.
Click here to read the public announcement issued by the Financial Crimes Enforcement Network (FinCEN) on the beneficial ownership rule.
After a 10 day jury trial, a jury found U.S. Bancorp liable for almost $3.3 million in damages for infringing upon a patent covering check-processing technology owned by Solutran, Inc. (”Solutran”). Solutran’s U.S. Patent No. 8,311,945 covers a method for processing paper checks whereby data regarding a transaction captured at a merchant’s point of purchase is later matched against a scanned image of a check at a remote location. The jury rejected U.S. Bancorp’s argument that the patent was obvious based on prior art, and found that almost 100 million of the bank’s transactions had infringed on Solutran’s patent.
The U.S. Bancorp case should serve as notice to both service providers and banks. Service providers and banks who process paper checks should confirm they are not infringing on Solutran’s patented method to avoid potentially significant liability. Banks that rely on third parties for check processing should review their contracts with service providers to ensure that proper indemnification language is included in the governing agreements.
On April 10, 2018, the Federal Financial Institutions Examination Council (the “FFIEC”), an interagency body composed of the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency and the State Liaison Committee, issued guidance to assist financial institutions in analyzing the use of cyber insurance in an effective risk management program (the “Guidance”).
On April 3, 2018, the Department of Treasury released recommendations to “modernize” the Community Reinvestment Act of 1977 (“CRA”). Treasury’s recommendations include:
- updating the definitions of geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors;
- increasing clarity and flexibility of CRA examinations to increase transparency and effectiveness of CRA rating determinations;
- improving the examination process to increase timeliness of evaluations and increasing accountability for banks’ planning of their CRA activity; and
- incorporating performance incentives to better serve the CRA’s intended purpose of encouraging banks to meet the credit and deposit needs of their communities.
Click here to read an expanded synopsis of this topic.