Reporting Rule FAQ Shines Light on Corporate Transparency Act Implementation

In March, the Financial Crimes Enforcement Network (FinCEN) published a list of responses to Frequently Asked Questions (FAQs)1 related to the Beneficial Ownership Information (BOI) Reporting Final Rule that was published in September 2022. While FinCEN has issued guidance on the mechanics of how it will implement the Corporate Transparency Act (CTA), the FAQ offered little, if any, new information and there are still unanswered questions, particularly for those in the financial services sector.

The CTA aims to lift the veil on opaque company structures that historically have been misused to further illicit activity, including money laundering, human and drug trafficking, and tax and sanctions evasion. There are three components of the CTA that will implement the act: BOI reporting requirements (Reporting Rule), BOI Access and Safeguards requirements (Access Rule), and, lastly, revisions to the 2016 Customer Due Diligence (CDD) requirements for covered financial institutions (CDD Rule).

The Notice of Proposed Rulemaking (NPRM) for the Access Rule sheds some additional light on expectations for financial institutions (FIs), particularly how FIs will be able to access BOI electronically through FinCEN’s Beneficial Ownership Secure System (BOSS), and the limits and safeguards that FIs must put in place related to access and use of BOI information.

The most significant impact for FIs will come later, after both the Access Rule has been finalized and the CDD Rule is revised. This must be done no later than one year after the effective date of the BOI Reporting requirements, or January 1, 2025. FIs still have some time to assess and develop a strategic plan that will address these requirements. Guidehouse has highlighted some key considerations below.

Key Considerations for Financial Institutions as the Industry Awaits Final Regulations from FinCEN

FinCEN estimates that within the first year of BOI reporting requirement taking effect, more than 32M reporting companies will file initial BOI reports, and over 6.5M reporting companies will file updated BOI reports. Most, if not all, of these entities have accounts with banks that are required to collect and verify beneficial ownership information, among other things, under the CDD Rule. As entity customers start to comply with the Reporting Rule, changes to the CDD Rule may require FIs to amend their current controls for customer onboarding and CDD compliance. The proposed Access Rule already highlights some of those new controls, such as policies and procedures to control access to FinCEN’s BOSS, when they will request information from BOSS, and processes to ensure the safeguarding of any BOI obtained.

FIs should socialize these developments with senior management and start to consider the impact of the CTA on their operations and budgets now. While the full impact may not be realized until FinCEN provides further information on the final Access Rule, FIs may begin to leverage information available², including the Reporting Rule and associated FAQs, and FinCEN’s NPRM on the Access Rule.

To begin preparing for the potential changes and impacts of the CTA, Guidehouse recommends that financial institutions begin to consider the following:

Internal Communication — Compliance officers should establish and maintain communication to apprise boards of directors, senior management, and key personnel of regulatory changes, early and often. Additionally, proactive compliance officers may begin to distribute training across their institutions. Establishing awareness across your business will build rapport and facilitate a teamwork approach to planning and troubleshooting to ensure timely and complete compliance with CTA requirements.

Impact Assessment —  FIs will benefit from beginning to design and conduct impact assessments now, to determine what processes and lines of business may be impacted, and how this may affect their customer base and know your customer (KYC) processes. Robust impact assessments will inform FIs’ decisions on further assessments and project planning to ensure a well-organized and efficient approach to complying with the CTA.

Staffing Assessment — Once FIs analyze potential impacts, it will be critical to consider potential effects on staffing and resources. Amendments to KYC onboarding and CDD processes will impact teams across all lines of defense responsible for carrying out key processes. FIs will benefit from conducting staffing assessments that consider multiple scenarios, including realignment or augmentation of resources, on a temporary or permanent basis, to address changes in the focus and volume of work required to implement required changes and maintain compliance with requirements.

Technology Assessment — FIs will need to consider how to leverage, enhance, or replace current systems used for customer onboarding tasks such as customer due diligence, customer risk rating, and customer and beneficial owner screening, as well as record- keeping and retention. Additionally, FIs should assess whether any in-flight technology enhancements may be impacted and adjust planned implementations as appropriate.

FIs that begin to assess and plan for their response to the CTA and the changes to the CDD rule will be in a strong position to establish a timely and cost-effective approach to robust compliance with the new requirements.

How Guidehouse Can Help

Guidehouse has extensive experience performing comprehensive Anti-Money Laundering (AML) program assessments that focus on helping clients strengthen controls. We’ve helped clients successfully prepare for and respond to regulatory change. Our relevant expertise includes:

• AML program assessments
• Compliance program, policy and procedure reviews, and upgrades in response to regulatory or business changes
• Enhancing controls related to customer onboarding and customer due diligence processes
• CDD file review and uplift
• Technology services including system enhancements and model validation
• AML transaction monitoring program coverage assessments
• AML training and board presentations 
• Senior staff augmentation and managed services 

Guidehouse can quickly review and assess your AML compliance program to advise on opportunities to enhance its effectiveness and efficiency, and help you prepare for compliance with the CTA. We are well-equipped to make an individualized assessment of your unique circumstances and offer advice for responding to heightened regulatory requirements.