U.S. Banks Cite Mixed Results in First Round of Beneficial Ownership Rule Exams

Topics: Financial Crime, Government, Government Regulation, Regulation & Compliance, Regulatory Intelligence, Risk Management, Thomson Reuters Regulatory Intelligence

financial crime

MIAMI — It has been nearly a year since regulators began examining banks for compliance with the U.S. Treasury Department’s customer due-diligence and beneficial-ownership rule, and while some examinations have gone smoothly, others have required discussions with examiners regarding expectations, bankers said last week at an anti-money laundering (AML) conference.

“Our first experience was pretty good,” Rick Small, director of the financial crimes program at BB&T, said during a panel discussion at the Association of Certified anti-Money Laundering Specialists (ACAMS) annual event.

The customer due-diligence and beneficial ownership rule issued by Treasury’s Financial Crimes Enforcement Network (FinCEN) took effect in May 2018 after a years-long rule-making process. Roughly half of affected financial institutions have thus far been examined for compliance during the past year, according to an informal poll of the more than 2,000 conference attendees.

Based on public statements by regulatory officials, there was an expectation that banks’ first examinations for compliance with the rule would focus on whether the requirements were understood and whether institutions had put appropriate processes in place, Small said. He was “very apprehensive” about his institution’s first examination, but it went as expected, without extensive testing or criticism, he added.

An examination that took place at E*Trade last summer “was a little more interesting,” said John Davidson, the institution’s global head of anti-money laundering. E*Trade faced “some questions and some assertions” regarding the institution’s obligations to know its customers’ customers as well as which customers were classified as high-risk, Davidson said. “Both of those were areas where I have heard (Office of the Comptroller of the Currency, or OCC) higher-ups directly contradict that assertion,” he said.


…When examiners take approaches that are at odds with positions publicly stated by regulatory officials, “you can’t be bashful about pointing that out to examiners.”


Davidson said that when examiners take approaches that are at odds with positions publicly stated by regulatory officials, “you can’t be bashful about pointing that out to examiners.”

“It would be nice to think that the OCC examiners had heard all of that, but the reality is… you’re always going to get a mix of examiners,” he added.

It is therefore “more important than ever,” he explained, that compliance professionals know what regulators say at industry events to maintain awareness of official expectations. He added that AML officers should “not hesitate” to recount those statements during discussions with examiners.

The customer due-diligence and beneficial ownership sections of the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/Anti-Money Laundering Manual — the template bank examiners use to supervise for AML compliance — do “a pretty good job of tracking to what we’ve heard publicly from leaders of regulatory agencies” and are “a great resource that can be pointed to” in discussions with examiners, said Megan Hodge, the AML officer at Ally Bank.

During an appearance at the same ACAMS conference earlier in the week, Joseph Otting, head of the OCC, said he “would give the industry a B (grade)” with regard to customer due-diligence and beneficial ownership rule compliance.

Speaking alongside Small and the other bankers on the panel, Dan Stipano, a former senior AML official with the OCC who helped develop the rule, said it is very difficult to operationalize all its elements within a financial institution. “With all due respect to my former agency, I give you a higher grade than a B. I think the effort the industry has undertaken has been really extraordinary,” said Stipano, now a partner with Buckley Sandler.


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