Banks brace for rocky implementation of U.S. Treasury beneficial ownership rule

NEW YORK (Thomson Reuters Regulatory Intelligence) - As banks prepare for compliance with the U.S. Treasury Department’s new Customer Due Diligence rule and its tricky beneficial ownership component, some compliance units are planning early implementation and making contingency plans for handling any problems as the new measures go live, bankers say. But banks still may not be doing enough to prepare, even as the amount of money being spent and number of Know Your Customer specialists spikes at large institutions.

A Jordanian woman poses with a handful of gold coins in a shop in Amman's gold market April 10, 2006.

“(Some institutions) are setting up a big catch-all bucket for all of the issues they will miss, because it will take too much time and effort to truly analyze what capturing all this new information will mean from a systems, resources, process, or true risk-tolerance perspective,” Nick Guest, director of Bank Secrecy Act risk with consultancy autoAML, told Thomson Reuters Regulatory Intelligence. “I would say that most are using a wait-and-see approach which is really implementing a triage room rather than an actual proactive war room.”

A major concern is that some banks are assuming that their customer bases are low-risk despite “not actually knowing who is truly behind the corporate veil of their customers,” said Guest, who has been working with a number of bank compliance professionals to address issues related to the new rule.

“How can you know if you are low risk if you don’t even know who is truly behind the legal entities you are banking?” he said.

The new Treasury rule, issued last year, comes into force in May. It requires banks to collect information about the true, of “beneficial,” owners behind legal entity accounts. The goal is to lift the corporate veil that can allow criminals to launder ill-gotten gains under the guise of legitimate financial activity.

The rule has been top-of-mind for many of late not only because of the looming implementation deadline, but also because regulators recently pulled the rug from under some banks’ compliance plans.

Officials from the Federal Reserve Board of Governors and Treasury’s Financial Crimes Enforcement Network (FinCEN), which crafted the rule, confounded the industry assumptions at at a recent conference held by the Association of Certified Anti-Money Laundering Specialists (ACAMS). They said for the first time that collecting information about people who own 25 percent or more of legal entities – what most had interpreted as the requirement of the rule – is not enough and that in cases of high-risk customers, banks will need to delve deeper.

Banks also remain unclear about certain exemptions in the rule as well as so-called “triggers” that would require the collection of information about longstanding customers.

FinCEN and the bank and broker-dealer regulators with a stake in the rule have vowed to provide more guidance before May. But with institutions needing more information now as they plan their compliance regimes, banks are preparing for what could be a messy implementation. At the same time, they are working to prepare their customer bases for the more-onerous information collection procedures.

Representatives of Union Bank and Trust went to a local chamber of commerce and told business representatives “you need to expect this, have the proper paperwork and be ready to give the information,” Joe Soniat, the anti-money laundering compliance officer at the bank, said during a panel at the ACAMS conference late last month.

The goal was to avoid any “combative” interactions by letting businesses know about new expectations prior to May 2018, Soniat said.

“This is something where we thought we could really reach out to businesses in the community that we knew may come bank with us, that do bank with us now, that we could help have them understand and hopefully that will make it easy on people opening an account,” he said.

The bank will also have a “war room” staffed by Bank Secrecy Act compliance experts who can answer questions to support business lines, Soniat said.


Ally Financial is “building awareness” of the new rule among employees via online training. As the implementation date approaches it will “be rolling out official training to specific departments that are going to be impacted directly,” Megan Davis Hodge, AML officer for Ally, said at the conference.

Ally also plans to adopt the rule early to give itself “a bit of a buffer in case things do go bump in the night,” Davis Hodge said.

“We certainly would expect that we’ve got some additional oversight and monitoring and testing taking place during that time so that if there is something that was unanticipated or people are not following through as we expected or there was a misunderstanding we can identify and course correct early on,” she said. “We certainly don’t want to wait until a year has gone by before realizing we’ve been doing it wrong all this time.”

Ally’s compliance team also has asked its business lines “to help us think through” any “weird or complicated” scenarios that may arise, Davis Hodge said.

“We’ve also got a standing agreement with them that things are going to come up that we have not anticipated, that is just the way it goes. When that happens, we’ll huddle up, discuss it, and figure out what we do from there,” she said.

Anna Rentschler, who manages the enterprise-wide AML unit of Central Bancompany, a bank holding company, added that “something always comes up” during the implementation process.

Central Bancompany plans to do training for frontline staff but also will have written materials to help frontline staff, Rentschler said.

The compliance department will produce a question-and-answer document that the frontline personnel “could easily look at if they needed to,” she said.


According to recent independently-conducted surveys for Thomson Reuters’ KYC business unit, financial institutions with $10 billion or more in revenue increased their average spend on KYC-related procedures to $150 million this year, up from $142 million in 2016. Meanwhile, the number of KYC compliance professionals at these institutions grew to an average of 307, from 68 last year. But despite these steps, more than a third of firms reported that scarce resources remained their biggest challenge in conducting KYC and customer due diligence processes, the surveys found.