We were recently told that the Customer Due Diligence (CDD) rule requires us to obtain beneficial ownership certification when a legal entity customer’s certificate of deposit or loan is renewed, even when there is no change to account. Is that true? Is there any chance that this requirement may be challenged in the future?

Yes, until FinCEN issues clarifying guidance on this point, CD and loan renewals should be considered “new accounts” under the CDD rule for the purpose of obtaining beneficial ownership certifications.

The CDD rule’s identification and certification requirements regarding beneficial ownership apply each time a “new account” is opened for a legal entity (unless the customer or account is exempted). We reached out to representatives from FinCEN’s Resource Center, who confirmed that to maintain consistency with interagency guidance regarding customer identification programs, CD and loan renewals should be treated as “new accounts” under the CDD rule.

However, there is a chance that this requirement will change in the future. The FinCEN representatives assured us that the agency is in the process of issuing guidance to clarify this point — guidance that “may or may not” classify renewals as “new accounts.” Consequently, banks must decide whether to prepare to treat CD and loan renewals as “new accounts” when the CDD rule takes effect May 11, 2018, or to wait and see how FinCEN’s upcoming guidance takes shape.

For resources related to our guidance, please see:

FinCEN Final Rule, 81 Fed. Reg. 29397, 29451 (Effective May 18, 2018) (New 31 CFR 1010.230(b): “With respect to legal entity customers, the covered financial institution's customer due diligence procedures shall enable the institution to: (1) Identify the beneficial owner(s) of each legal entity customer at the time a new account is opened, unless the customer is otherwise excluded pursuant to paragraph (e) of this section or the account is exempted pursuant to paragraph (h) of this section. A covered financial institution may accomplish this either by obtaining a certification in the form of appendix A of this section from the individual opening the account on behalf of the legal entity customer, or by obtaining from the individual the information required by the form by another means, provided the individual certifies, to the best of the individual's knowledge, the accuracy of the information; . . .”)
FinCEN Final Rule, 81 Fed. Reg. 29397, 29452 (Effective May 18, 2018) (New 31 CFR 1010.230(g): “For the purposes of this section, new account means each account opened at a covered financial institution by a legal entity customer on or after the applicability date.”)
Interagency FAQs, Customer Identification Program Rule (April 28, 2005) (Question 1: “A loan and a time deposit are each an “account” for purposes of the CIP rule. How do the requirements of the CIP rule apply to a loan that is renewed, or a certificate of deposit that is rolled over? Answer . . . For purposes of the CIP rule, each time a loan is renewed or a certificate of deposit is rolled over, the bank establishes another formal banking relationship and a new account is established. . . .”)