Effective May 11, 2018, a new federal regulation requires all federally regulated banks, credit unions and security brokers/dealers to obtain additional information whenever a deposit or loan account is opened for legal entities such as corporations, LLCs and general partnerships.
Under these new rules (often referred to as the Beneficial Ownership or Customer Due Diligence Rule), each time an account is opened for the above listed entities, identifying information such as name, address, date of birth, Social Security number and copy of driver license or passport will be required for beneficial owners.
Does this regulation apply to existing business accounts? The bank is not required to conduct retroactive reviews to obtain beneficial ownership information from customers with accounts opened prior to May 11, 2018. However, if certain types of changes are made to existing account (e.g. change in signers, change of ownership structure, loan renewal or loan modification), beneficial ownership information will be required at that time if the bank does not have a current Beneficial Ownership Certification Form on file.
Who is a beneficial owner? The Rule defines beneficial owners as:
EACH individual, if any, that has 25% or more beneficial ownership in the legal entity; and
ONE individual with significant responsibility to manage, direct or control the legal entity (such as Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, etc.)
Beneficial Owner(s) must be a natural person, and cannot be another LLC or company, a nominee, or a straw man.
What types of individuals satisfy the definition of a person with “significant responsibility to manage, direct or control a legal entity customer?” The control person identified must be a high-level official in the legal entity who is responsible for how the organization is run and who will have access to a range of information concerning the day-to-day operations of the company. Examples of the types of positions that could qualify include an executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President or Treasurer). This list of positions is illustrative, not exclusive.
What types of identifying information is the bank required to collect for beneficial owners?
Name, Date of Birth, Address and Social Security number (or other government identification number, such as a passport number) is required for each beneficial owner. The bank will also request your company’s organizational documents.
What types of companies are considered to be Legal Entities? For purposes of Beneficial Ownership, a Legal Entity is defined as a corporation, limited liability company, general partnership, limited partnership or other type of entity, including business trusts, that are created by the filing of a public document with a Secretary of State or similar office.
A Legal Entity customer does not include sole proprietorships, unincorporated associations or natural persons opening accounts on their own behalf.
Are there any entities that are excluded from the definition of the legal entity customer and for which a bank is not required to obtain beneficial ownership information? Yes. The Rule excludes from the definition of legal entity customer certain entities that are subject to Federal or State regulation and for which information about their beneficial ownership and management is available from the Federal or State agencies, such as:
Financial institutions regulated by a Federal functional regulator or a bank regulated by a State bank regulator.
A department or agency of the United States, of any State or of any political subdivision of a State.
Any entity established under the laws of the United States, or any State, or of any political subdivision of any State or under an interstate compact.
Any entity (other than a bank) whose common stock or analogous equity interests are listed on the New York, American or NASDAQ stock exchange.
Any entity organized under the laws of the United States or of any State at least 51% of whose common stock or analogous equity interests are held by a listed entity.
Issuers of securities registered under section 12 of the Securities Exchange Act of 1934 (SEA) or that is required to file reports under 15(d) of that Act.
An investment company, as defined in section 3 of the Investment Company Act
of 1940, registered with the US Securities and Exchange Commission (SEC)
An SEC-registered investment adviser, as defined in section 202(a)(11) of the Investment Advisers Act of 1940.
An exchange or clearing agency, as defined in section 3 of the SEA, registered undersection 6 or 17A of that Act.
Any other entity registered with the SEC under the SEA.
A registered entity, commodity pool operator, commodity trading advisor, retail foreign exchange dealer, swap dealer or major swap participant, defined in section 1a of the Commodity Exchange Act, registered with the Commodity Futures Trading Commission.
A public accounting firm registered under section 102 of the Sarbanes-Oxley Act.
A bank holding company, as defined in section 2 of the Bank Holding Company Act of 1956 (12 USC 1841) or savings and loan holding company, as defined in section 10(n) of the Home Owners’ Loan Act (12 USC 1467a(n)).
A pooled investment vehicle operated or advised by a financial institution.
An insurance company regulated by a State.
A financial market utility designated by the Financial Stability Oversight Council under Title VIII of the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010.
What about Associations and Non-Profits; are they also Legal Entities? Incorporated non-profits, like 501(c)3 organizations, as well as any organization that is created by the filing of a public document with a Secretary of State or similar office, are considered to be Legal Entities and will be asked to provide the name of one individual with significant responsibility to control, manage or direct the organization. (Examples include an executive officer or senior manager, CEO, CFO, COO, president, vice president, treasurer, etc.)
Who is responsible for providing this identifying information? The individual seeking to open a new deposit, loan or safe deposit account (or make changes to an existing account) on behalf of the Legal Entity customer will be asked to provide the Beneficial Ownership information. This individual could, but would not necessarily, be a Beneficial Owner. This individual must sign a Certification Form stating that to the best of his or her knowledge, the information on the Form is complete and correct.
What if no one owns 25% or more of the Legal Entity? If there are no owners with 25% or more ownership, then identifying information will only be required on one person who controls or manages the organization.
How frequently will identifying information be requested? Each time a new account is opened or a certain type of change is made to an existing account, Beneficial Ownership information will be required unless the bank has a current Beneficial Ownership Certification Form on file.