Q: FinCEN understands that after a covered financial institution (particularly in the securities and futures industries) opens a new account for a legal entity customer and identifies its beneficial ownership, the financial institution may subsequently open one or more additional accounts or subaccounts for that customer – for the institution’s own recordkeeping or operational purposes and not at the customer’s specific request – so that the customer may, for example invest in particular products or implement particular trading strategies. Would such accounts fall within the definition of “new accounts” for purposes of the beneficial ownership requirement?
A: The beneficial ownership requirement applies to a “new account,” which is defined to mean “each account opened … by a legal entity customer” [emphasis added]. An account (or subaccount) relating to a legal entity customer will not be considered a “new account” or an “account” for purposes of the Rule when a financial institution creates such an account (or subaccount) for its own administrative or operational purposes and not at the customer’s request—such as to accommodate a specific trading strategy—and the financial institution has already collected beneficial ownership information on such legal entity customer. The distinction between such accounts opened by customers and those opened solely by the financial institution is consistent with the Rule’s purpose to mitigate the risks related to the obfuscation of beneficial ownership when a legal entity tries to access the financial system through the opening of a new account.
This interpretation is limited to accounts (or subaccounts) created solely to accommodate the business of an existing legal entity customer that has previously identified its beneficial ownership. Thus, the following accounts (or subaccounts) would not fall within this interpretation:
accounts (or subaccounts) created to accommodate a trading strategy being carried out by a separate legal entity, including a subsidiary of the existing legal entity customer; and,
accounts (or subaccounts) through which the customer of a financial institution’s existing legal entity customer carries out trading activity directly through the financial institution without intermediation from the existing legal entity customer.
The above FAQ was included in FinCEN’s 2nd set of CDD FAQs that were released in April 2018. The FAQs are provided to assist financial institution in understanding the scope of the customer due diligence / beneficial ownership rule. The 2018 FAQs may be found here: