Presentation Deck Beneficial Ownership What Constitutes a Triggering

Presentation Deck Beneficial Ownership What Constitutes a “Triggering Event? ” October 4, 2017 www. bsacoalition. org 1

Beneficial Ownership - What Constitutes a “Triggering Event? ” October 4, 2017 www. bsacoalition. org 2

The views and opinions expressed here are those of the speakers. They do not represent an official position of the Federal Reserve Bank of Richmond or the Federal Reserve System. www. bsacoalition. org 3

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Megan Hodge Ally Financial Chris Gumm Virginia Credit Union www. bsacoalition. org 5

There are four key elements of customer due diligence (CDD): I. Customer Identification and Verification II. Beneficial ownership identification and verification Risk-based procedures for conducting ongoing customer due diligence: III. Understanding the nature and purpose of customer relationships to develop a customer risk profile; and IV. Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk-basis, to maintain and update customer information. Customer information shall include information regarding the beneficial owners of legal entity www. bsacoalition. org customers Current CIP NEW! 31 CFR 1010. 230 Amends BSA to add “ 5 th Pillar” Focus of today 6

What Does the Final Rule Require? • A financial institution must update customer information, to include beneficial ownership information, when it detects information about the customer in the course of its normal monitoring that is relevant to assessing or reevaluating the risk posed by the customer. • Applies to all legal entity customers, including those existing on the Applicability Date. • Does not require a periodic update of customer information Updating requirement is event-driven and should occur as a result of normal monitoring. 7

Examples in the Final Rule of events requiring updates to Beneficial Ownership: • Information indicating a possible change in the customer’s beneficial ownership, because such information could also be relevant to assessing the risk posed by the customer • A significant and unexplained change in the customer’s activity, such as executing crossborder wire transfers for no apparent reason or a significant change in the volume of activity without explanation 8

Are these Triggering Events? Potential Triggering Events from the Front Line: • Opening a new account including loans • Loan extensions or renewals • Change in signers and/or beneficial owners • Change in ownership structure of business • Knowledge that the beneficial owners have changed • Address changes or other updates to account/relationship records 9

Are these Triggering Events? Potential Triggering Events from the Back Office: • Increase in Currency Transaction Report (CTR) filings • Knowledge that the beneficial owners have changed • Designation of Exemption (CTR Exemptions) • 314(a) Positive match • 314(b) Inquiries • Criminal subpoenas/law enforcement inquiries 10

Are these Triggering Events? Potential Triggering Events from Transaction Monitoring: • Significant and unexplained change in customer activity/ deviation in expected activity • Filing a Suspicious Activity Report (SAR) • High risk clients 11

Practical Tips to Identifying Triggering Events: DO: DON’T: • Stay focused on events that are relevant to the risk posed by the customer • Don’t include too many triggering events • Identify events that have a “bright line” • Focus on relevant processes within your institution • Keep it simple • Don’t over-complicate the process • Don’t feel pressure to adopt every triggering event you hear about • Don’t forget to follow through to ensure beneficial ownership has been updated 12

Next Steps to Ensure Success: • Discuss various potential Triggering Events with business and select the ones that best fit your institution, based on your business, process and clients • Update policy and relevant procedures • Define controls and, as needed, reporting, to allow management to track updates required by Triggering Events • Conduct training for impacted associates and departments • Define oversight protocols to monitor the new process after the effective date 13