US law requires FCMs, IBs to identify customer identities, beneficial owners

US law requires FCMs, IBs to identify customer identities, beneficial owners

Brokers or dealers in securities, futures commission merchants (FCMs), and introducing brokers in commodities in the US will be required to performe customer due diligence (CDD) on account holders, the US National Futures Association (NFA) said on Friday, citing the latest regulatory amendments made by the Financial Crimes Enforcement Network (FinCEN).

FCM and IB members will be required to obtain, verify, and record the identities of the beneficial owners of legal entity customers at the time a new account is opened.

“The CDD Rule requires covered financial institutions to establish and maintain written procedures that are reasonably designed to identify and verify the beneficial owners of legal entity customers. These procedures must enable the institution to identify the beneficial owners of each customer at the time a new account is opened, unless the customer is otherwise excluded or the account is exempted. Also, the procedures must establish risk-based practices for verifying the identity of each beneficial owner identified to the covered financial institution, to the extent reasonable and practicable. The procedures must contain the elements required for verifying the identity of customers that are individuals under applicable customer identification program (“CIP”) requirements,” the FinCEN final rules read.

The changes implemented by the FinCEN require FCMs and IBs to include in their anti money laundering (AML) programs the following risk-based ongoing CDD procedures:

  • conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information, and
  • understanding the nature and purpose of the customer relationships; and

According to the law changes, an AML program must also include, at a minimum:

  •  a system of internal controls;
  • independent testing;
  • designation of a compliance officer or individual(s) responsible for day-to-day compliance;
  • training for appropriate personnel; and
  • appropriate risk-based procedures for conducting ongoing CDD to understand the nature and purpose of customer relationships and to conduct ongoing monitoring to identify and report suspicious transactions, and, on a risk basis, to maintain and update customer information.

Entities may use photocopies or other reproductions of identification documents in the case of documentary verification.

Customer profile information will serve as a baseline agians which to assess potential suspicious transaction reporting. Wherefore, FCMs or IBs must update it on a “risk basis”, meaning when they become aware of information that is relevant to assessing or re-evaluating the risk posed by the customer during its normal monitoring.

FinCEN’s final rules became effective on July 11, 2016, but firms are not required to comply with them until 11 May, 2018. The NFA said it intends to amend its NFA Compliance Rule and AML program to reflect these changes.

The rules will apply new accounts opened from 11 May, 2018, and will not be relevant to existing accounts.


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