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New CIP Requirements Proposed By FinCEN

New York (HedgeCo.Net) – FrontLine Compliance reports thatĀ FinCEN is proposing new rules for broker-dealers and mutual funds. The latest proposal would require firms to update their CIP Programs for legal entity customers, such as partnerships, corporations, and limited liability companies. If the proposal is adopted, the Bank Secrecy Act (BSA) will be amended to require enhanced Customer Due Diligence (CDD) for legal entity customers.

The most important change would require firms to obtain identifying information on the beneficial owners of legal entity customers. FinCEN went so far as to create a sample CIP form for this purpose as part of its proposal. The form will serve as the means for gathering the required information on beneficial owners of legal entity customers.

The purpose of the proposed rule requirement is to enhance the CDD process, which consists of four elements:

  • Identifying and verifying the identity of customers;
  • Identifying and verifying the identity of beneficial owners of legal entity customers;
  • Understanding the nature and purpose of the customer relationship; and
  • Conducting ongoing monitoring to update CIP information as needed and identify potential suspicious activity for reporting purposes.

All broker-dealer and mutual fund firms are encouraged to utilize the new CIP form, as proposed, for beneficial owners of legal entity customers. The rule change would become effective one year after the issuance of a final rule and would affect new accounts only.

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