KYC – CDD appear poised to make the jump to ‘Fifth Pillar’ in the world of AML compliance under the Bank Secrecy Act, a move driven by a new push from FinCEN.
FinCEN in late July proposed new rules that, if approved, would require financial institutions to identify and verify the ultimate beneficial owners of customers. They would also make explicit the legal requirements for CDD – KYC relative to the nature and purpose of each customer relationship and the behavioral monitoring required for each customer over the life of the relationship. In addition, FinCEN proposes that CDD – KYC be elevated in status to the 5th Pillar of AML programs.
Currently, the Four Pillars of BSA AML Comliance include the following: 1) Assignment of a compliance officer for BSA AML duties, 2) The development of internal procedures, policies, and controls, 3) Ongoing relevant training of employees, and 4) Independent testing and review.
KYC – CDD Solutions Are Foundation for Effective AML Efforts
AML Partners CEO Frank Cummings said that KYC – CDD solutions are critically important to effective AML core programs and that these proposed rules would have a major positive impact regarding clarity and efficacy of KYC – CDD solutions.
“This is a step forward in the effort to stop money laundering and terrorist financing,” Cummings said. “These proposed rules provide precise information on what institutions need to do. For example the requirements about UBOs are very clear. This requirement has always been present, but these rules add much more detail and precision.”
He also said the elevation of CDD – KYC to a core element will require institutions to attend much more assiduously to their CDD: “Raising CDD to the level of a pillar of compliance is a loud and clear wake-up call. All financial institutions and all others subject to the BSA will need to recognize due diligence as a major requirement of their AML program. Check-box compliance will no longer be tolerated, in our opinion,” Cummings said.
KYC – CDD Emphasis on Ultimate Beneficial Owners
Cummings said AML Partners has been offering this type of CDD – KYC software solution and approach for several years.
“We have been stressing the importance of comprehensive CDD and the identification and analysis of UBOs for years,” Cummings said. “That identification can certainly be a challenge for Compliance, but that is where the truth about AML and CTF often are found.”
“In fact, we are adding a new Principals Registry within SURETY-CDD, our all-the-bells-and-whistles KYC – CDD software, that allows you to drill down on the UBOs as low as you wish,” Cummings added. “You create a principal name related to the account—for example a UBO, a PEP, or so on—and give them a unique identifier. If that principal is added to another customer, you can see that relationship with one click of a button. It’s these types of approaches to drilling down on UBOs that we believe will provide the gold standard in effective AML-CTF, and FinCEN’s push for greater emphasis on these elements is further evidence of that.”