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New Requirements Make It Essential For Credit Unions To Have Their Policies And Procedures Down Pat

Four elements to help financial institutions cover their bases in regard to new FinCEN due diligence requirements.

Don’t be fooled by the enactment of the Freedom Act and the provisions of the Patriot Act that have recently expired. It’s easy to hear the headlines and be tempted to think your credit union can now open accounts with abandon. Not so fast.

In fact, if you are responsible for compliance or your credit union’s account opening areas, you may need to strengthen your account opening policies and procedures even more. Unlike the highly publicized changes to the USA Patriot Act, you won’t hear about the enhanced due diligence measures expected to be released in August by FinCEN being discussed on national news.

Initially, FinCEN released an advanced notice of proposed rulemaking (ANPR) in 2012 and a proposed rule in 2014. The rule contains four key elements FinCEN believes will help financial institutions and regulators by ensuring that requirements for this type of due diligence are clearly defined. FinCEN states that proposing clear CDD requirements is the most effective way of clarifying, consolidating, and harmonizing expectations and practices across all covered financial institutions.

There are four key elements included in the rule

  • Identifying and verifying the identity of members
  • Identifying and verifying the identity of beneficial owners of legal entity members
  • Understanding the nature and purpose of member relationships, and
  • Conducting ongoing monitoring to maintain and update member information and to identify and report suspicious transactions.

FinCEN acknowledges that the first element is sufficiently covered with a financial institution’s CIP program, however this is a great opportunity to take a second look at your credit union’s CIP program and determine if it is functioning as it should. Common issues can include lack of procedures for less common types of accounts such as minors, businesses, trusts, etc. Also, your credit union should have in place a system of internal controls that tests your procedures on a regular basis to see if the processes are not only working as intended, but that they make operational sense for your credit union.

Enhanced due diligence for business accounts should also already be in place in your credit union. This includes collecting information not only about the owners of the account but how they intend to use the account and for what purpose. Having this framework in place now will be a building block for the second element requiring financial institutions to verify the nature of beneficial owners.

Credit unions should already have a system in place to both generally understand members’ intentions with their accounts, and also be on the lookout for this provision to become more defined as a result of this rule. The same holds true for the last element; you must already have in place a process that helps your credit union identify any potential suspicious activity. The new rule would require continually collecting and updating your members’ information.

Having the basics covered in these areas will serve you and your credit union well as you look ahead to August and the potential for the enactment of the final CDD rules. Need some assistance getting your credit union’s policies, procedures, and other processes in place in advance of these additional requirements?

;Let CU Rx know, and we can help. To learn more, visit www.cu-rx.com.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
June 15, 2015

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