By Ray Birch
NEW YORK—The federal government’s decision to permanently free U.S. businesses from Corporate Transparency Act (CTA) reporting gives credit unions an opportunity to deliver some welcome news to business members—but it does not eliminate credit unions’ own obligation to identify the people behind the businesses they serve.
That distinction is an important one following the Financial Crimes Enforcement Network’s Aug. 11 final rule permanently eliminating CTA beneficial ownership information (BOI) reporting requirements for U.S. companies and U.S. persons. FinCEN also said it will delete previously reported information from U.S. persons from its BOI database. Foreign entities that qualify as reporting companies remain subject to reporting requirements for foreign beneficial owners.
For credit unions, the immediate opportunity is communicating the change to small-business members that may still believe they face a federal filing obligation, according to Stephen Aschettino, co-chair of the financial services practice at Fox Rothschild.
“They can tell their clients if you're a U.S. company owned by U.S. persons, you're done, stand down,” Aschettino told CUToday.info.
He said credit unions could use member alerts and other outreach to explain the change and potentially strengthen their position as trusted advisers to business members.
But credit unions should not confuse the CTA rollback with their own customer due diligence responsibilities. FinCEN says covered financial institutions must still obtain, verify and record beneficial ownership information for legal-entity customers under the agency’s CDD rule. That generally means identifying individuals owning 25% or more of an entity as well as an individual who exercises significant control.
There has, however, been some separate relief for financial institutions. In February, FinCEN eliminated the requirement that institutions identify and verify the beneficial owners of an existing legal entity customer every time that customer opens another account. Institutions may now generally limit that process to the customer's first account, situations in which information calls previously collected ownership information into question, and circumstances dictated by risk-based ongoing due diligence.
Stephen Aschettino
That makes the compliance message for credit unions relatively straightforward: the business member’s CTA filing obligation may have disappeared, but the credit union’s CDD obligation has not. FinCEN's latest guidance also makes clear there is no blanket requirement to update customer information on a fixed schedule; updates are risk-based and triggered when normal monitoring reveals information relevant to the customer's risk profile.
Removing Friction
Aschettino said the rollback could also remove one friction point for entrepreneurs and small businesses. The original CTA required covered businesses to provide sensitive information about their owners, including identifying information and documentation, and estimates put the industry's initial compliance cost near $22 billion.
“One could argue this creates a more favorable climate for new businesses expansion,” Aschettino said, adding that credit unions should watch for resulting opportunities for new-business formation and expansion in their markets.
Privacy was another major concern surrounding the CTA, Aschettino noted, because businesses were being required to transmit highly sensitive ownership information into a federal database. FinCEN has now gone beyond simply ending the domestic reporting requirement by committing to delete BOI previously submitted by U.S. persons.
The broader issue for credit unions is that beneficial-ownership requirements remain part of a moving regulatory landscape. FinCEN in April proposed a substantial overhaul of financial institutions’ Bank Secrecy Act/anti-money-laundering programs that would place greater emphasis on risk-based effectiveness and allow institutions to direct more resources toward higher-risk customers and activities. That means credit unions should continue watching FinCEN's CDD and broader AML rulemaking rather than treating the CTA rollback as the end of the beneficial-ownership issue, Aschettino noted.
Aschettino said there is also a lesson in how the CTA changed course. Financial services groups and businesses remained engaged in the regulatory process and raised practical concerns about implementation.
“This is a success story for the financial services industry,” he said. “It stayed engaged with the rulemaking progress, trade groups submitted comments and raised practical concerns and that moved the needle here. That's how regulation is supposed to work.”