FinCEN Releases Additional Guidance on BSA/AML Customer Due Diligence for Hemp-Related Businesses

On August 3rd, the Financial Crimes Enforcement Network (FinCEN) issued additional guidance to financial institutions further clarifying the regulatory requirements surrounding customer due diligence (CDD) procedures for hemp-related businesses. This guidance was released specifically to address three frequently asked questions that followed FinCEN’s June 29th release of guidance. FinCEN’s full guidance may be found through the link above, and we have summarized their responses below.

FAQ#1: Procedural Requirements in Collecting Customer Information 

“Is it a requirement under the CDD Rule that covered financial institutions:

  • collect information about expected activity on all customers at account opening, or on an ongoing or periodic basis;
  • conduct media searches or screening for news articles on all customers or other related parties, such as beneficial owners, either at account opening, or on an ongoing or periodic basis; or
  • collect information that identifies underlying transacting parties when a financial institution offers correspondent banking or omnibus accounts to other financial institutions (i.e., a customer’s customer)?”

FinCEN’s Response – FinCEN advises that none of the above are “categorically” required of credit unions; however, procedures must be in place for CDD for hemp-related businesses, the same way they must be in place for other types of businesses. Credit unions must obtain basic identifying information by using their member identification programs and risk-based CDD process, and they must establish and tailor the appropriate risk-based procedures for conducting ongoing CDD procedures in order to stay ahead of risk and suspicious transactions. 

FAQ#2: Categorization Requirements in Performing Customer Risk Profiles

“Is it a requirement under the CDD Rule that covered financial institutions:

  • use a specific method or categorization to risk rate customers; or 
  • automatically categorize as “high risk” products and customer types that are identified in government publications as having characteristics that could potentially expose the institution to risks?”

FinCEN’s Response – FinCEN’s guidance indicates there is no specific method required to risk rate members. In addition, automatic classification as “high risk” isn’t required. Credit unions should review each member to determine the risk rating.Too many variables exist to prescribe a one-size-fits-all requirement. FinCEN reiterates the level of risk should be assessed on a case-by-case basis, and programs should be tailored to each member’s risk profile.  

FAQ#3: Requirements for Ongoing Updates to Customer Information 

“Is it a requirement under the CDD Rule that financial institutions update customer information on a specific schedule?” 

FinCEN’s Response – There is no specific time period for updating member information. That doesn’t mean your credit union shouldn’t perform regular reviews on the basis of risk; it simply means there is no required schedule. FinCEN encourages normal, ongoing monitoring procedures that lead to risk assessment and updates to member information, as appropriate; however, they leave the scheduling of such reviews at the discretion of each credit union, as the variables involved in assessing risk from one institution to another differ drastically.

Additional Resources

FinCEN has asked for questions or comments on this guidance to be addressed to the FinCEN Regulatory Support Section at frc@fincen.gov. They also have a web page dedicated to CDD resources and have previously published FAQ documents on July 19, 2016, and April 3, 2018, which credit unions may find helpful in addressing related concerns. 

Contact ARB

ARB’s Credit Union Services Group is dedicated to your industry. We are available to assist with understanding new guidance and standards, staying alert to accounting updates, and creating a plan for implementation and compliance. Contact us for more information or with any other accounting and business advisory needs. Please visit our COVID-19 Financial Resource and Tax Center for additional information on related matters.

 

by Holly Ferguson, CPA