Beneficial Ownership Requirements

Under FinCEN regulation § 1010.230, Beneficial ownership requirements for legal entity customers, credit unions must identify the beneficial owners of each legal entity customer/member at the time a new account is opened, unless the legal entity member is otherwise excluded or the account is exempted.

For purposes of this rule, a “legal entity” is defined as a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account. See FinCEN regulations §§ 1010.230(e)(2), Legal entity customer, for a list of the entities excluded from the definition of legal entity and 1010.230(h), Exemptions, for exemptions and related limitations.

Credit unions may obtain identifying information for beneficial owner(s) of legal entity customers/members through a completed certification form from the individual opening the account on behalf of the legal entity customer/member, 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. See Appendix A to §1010.230 for a sample certification form.

A credit union identifies beneficial owners by using a two-prong test, described below.

Ownership Prong

The first test is the “ownership prong,” which considers individuals who directly or indirectly own 25 percent or more of the equity interests of a legal entity. All legal entities will have between zero to four individuals under the ownership prong.

The chart below, derived from FinCEN guidance FIN-2018-G001, Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions, illustrates an ownership prong example for purposes of the beneficial ownership rule. In this example, Allan is a beneficial owner of Customer because he owns indirectly 30 percent of its equity interests through his direct ownership of Company A.

Tish is also a beneficial owner of Customer because she owns indirectly 20 percent of its equity interests through her direct ownership of Company A, plus 16.666 percent through Company B for a total of indirect ownership interest of 36.666 percent. Neither Karl nor Tony is a beneficial owner because each owns indirectly only 16.666 percent of Customer’s equity interests through their direct ownership of Company B.

Chart depicting ownership shares

Control Prong

The second test is the “control prong,” which includes a single individual with significant responsibility to control, manage, or direct a legal entity, such as an executive officer, senior manager, or any other individual who regularly performs similar functions (for example, CEO, CFO, COO, managing member, general partner, president, vice president, or treasurer). All legal entity members must list one individual under the control prong. It is possible for the same person to be identified under both the ownership and control prongs.

Credit unions are required to establish and maintain written procedures that are reasonably designed to identify beneficial owners of legal entity members. Under FinCEN regulation § 1010.230(b)(1), a credit union must obtain, at a minimum, the following identifying information for each beneficial owner:

  • Name

  • Date of birth

  • Address

  • Identification number

Credit unions must establish and maintain written risk-based procedures for verifying the identity of each beneficial owner of a legal entity within a reasonable period after the account is opened. The risk-based procedures must also address conducting ongoing customer due diligence, including regular monitoring to identify and report suspicious activity and, on a risk basis, maintain and update customer information.

FinCEN Guidance FIN-2018-G001, Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions, states:

The obligation to obtain or update information is triggered when, during normal monitoring, a financial institution becomes aware of information about a customer or an account, including a possible change of beneficial ownership information, relevant to assessing or reassessing the customer’s overall risk profile. Absent such a risk-related trigger or event, collecting or updating of beneficial ownership information is at the discretion of the covered financial institution. Financial institutions may exercise this discretion to collect or update beneficial ownership information on customers as often as they deem appropriate.

Information about verification methods can be found in the Beneficial Ownership Requirements for Legal Entity Customers section of the FFIEC BSA/AML Examination Manual.

As applicable, examiners may review a sample of legal entity accounts opened since the last examination. From this sample, examiners determine whether the credit union has:

  • Opened the account in accordance with the requirements of the Beneficial Ownership Rule

  • Obtained the required identifying information for each beneficial owner of a legal entity (name, date of birth, address, and identification number)

  • Verified the beneficial owner’s identity information within a reasonable time after account opening

  • Resolved situations appropriately where the beneficial owner’s identity could not be verified

  • Maintained a record of the identity information, the method used to verify identity, and verification results

For more information, see:

Last updated on August 19, 2024