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KYC Requirements for Financial Institutions in the United States: Complying with Customer Due Diligence Final Rule

The Customer Due Diligence (CDD) final rule, which amends Bank Secrecy Act regulations, aims to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder their ill-gotten gains. The CDD final rule clarifies and strengthens customer due diligence requirements for US banks, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities.

Key Requirements

The CDD final rule requires covered financial institutions to establish and maintain written policies and procedures that are reasonably designed to:

• Identify and verify the identity of customers
• Verify the identity of beneficial owners of companies opening accounts
• Understand the nature and purpose of customer relationships to develop customer risk profiles
• Conduct ongoing monitoring to identify and report suspicious transactions
• Maintain and update customer information on a risk basis

Four Core Requirements

1. Identify and verify the identity of customers: Financial institutions will have to identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity.
2. Identify and verify the identity of beneficial owners of companies opening accounts
3. Understand the nature and purpose of customer relationships to develop customer risk profiles: Financial institutions must understand the nature and purpose of customer relationships to develop customer risk profiles.
4. Conduct ongoing monitoring to identify and report suspicious transactions and maintain and update customer information on a risk basis

Exceptions and Guidance

The Financial Crimes Enforcement Network (FinCEN) has issued several rulings providing exceptive relief for certain types of financial products and services, including:

• Ruling FIN-2018-R004: Provides exceptive relief from beneficial ownership requirements for legal entity customers of rollovers, renewals, modifications, and extensions of certain accounts
• Ruling FIN-2018-R003: Extends a limited exception from beneficial ownership requirements for legal entity customers of certain financial products and services with rollovers and renewals
• Ruling FIN-2018-R002: Provides guidance on beneficial ownership requirements for legal entity customers of certain financial products and services with automatic rollovers or renewals
• Ruling FIN-2018-R001: Addresses premium finance cash refunds and beneficial ownership requirements for legal entity customers

Additional Resources

For more information on complying with the CDD final rule, please see:

• CDD FAQs (Aug 2020)
• CDD Final Rule
• FFIEC Exam Procedures (May 2018)
• CDD FAQs (Apr 2018)
• CDD FAQs (July 2016)

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