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Are Customer Due Diligence procedures required on both consumer and business accounts?

During a recent Bank Secrecy Act examination, the examiner stated that Customer Due Diligence procedures are not required on consumer accounts—just business accounts. Is this a true?

No. The Customer Due Diligence rule is comprised of two parts: the customer due diligence part and the beneficial ownership part. There has been some confusion about the distinction between the two, perhaps because one part of the rule has the exact same heading as the rule itself. However, there is a distinction between these rules, and, indeed, each has its own examination procedures.

The beneficial ownership part of the rule only applies to certain legal entity customers but does not apply to individuals. In contrast, the customer due diligence part of the rule applies to all bank customers, both consumer and business.

The CDD Rule has four core requirements. It requires covered financial institutions to establish and maintain written policies and procedures reasonably designed to:

  1. identify and verify the identity of customers;
  2. identify and verify the identity of the beneficial owners of companies opening accounts;
  3. understand the nature and purpose of customer relationships to develop customer risk profiles; and
  4. conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

The recent changes to the customer due diligence rule just clarify these requirements and add a new requirement for covered financial institutions to identify and verify the identity of the natural persons (beneficial owners) of legal entity customers who own, control and profit from companies when those companies open accounts. It does nothing to diminish any existing requirements that banks know all their customers, including their consumer customers. (July 2019)

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