Banks loudest in chorus of critiques of FinCEN access rule

Banking trade groups wanted financial regulators to help them figure out which clients own which businesses and trusts – but they don't like the rules FinCEN wrote.

The bank associations lent their voices to a cacophony of critiques from Republican lawmakers, state attorneys general, and anti-corruption advocates who say the rule is unnecessarily complex, and that the agency should make revisions that ensure beneficial ownership data is accessible and accurate.

This is the second rule of three FinCEN will propose under the Corporate Transparency Act, or CTA, enacted in January 2021. Congress directed FinCEN, a bureau of the Treasury, to compile beneficial ownership information—BOI— of certain U.S. and foreign reporting companies in a Beneficial Ownership Secure System. This rule covers access and safeguarding of BOI required to be submitted to FinCEN. 

The regulator issued the first rule governing BOI reporting in September. The third rule will revise FinCEN's existing Customer Due Diligence Rule to work with the new regime.

Bank trade groups called for FinCEN to rescind the second, most recent proposed rulemaking, arguing that it fails to meet Congress' statutory intent and adds burdensome requirements for their industry.

In a comment letter, the American Bankers Association urged FinCEN to withdraw the rule they characterized as "fatally flawed." The group highlighted inefficiencies in the new rule, including onerous bureaucratic privacy safeguards that make the registry hard to access, and took issue with the lack of detail about verifying and sharing data across jurisdictions.

"As currently conceived, the Registry will be of limited, if any, value to banks…the proposal creates a framework in which banks' access to the Registry will be so limited that it will effectively be useless, resulting in a dual reporting regime for both banks and small businesses," the ABA wrote in a release.

"Obtaining customers' BOI from the Registry will not support banks' compliance with the [customer due diligence] Rule, and the proposal compounds this limitation by also precluding banks from using BOI more broadly to fulfill regulatory requirements beyond compliance with the [customer due diligence] Rule," the group said.

Criticism of the proposed wording came from several directions aside from banks. The Chairman of the House Financial Services Committee penned a similarly critical comment letter. In the Republican-led committee's letter, staff for Congressman Patrick McHenry (R-N.C.) raised a variety of concerns, saying: FinCEN's proposal exceeds Congress' statutory charter, that the rule fails to provide banks with flexibility and increases banks' customer due diligence burden.

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"It was not designed to be used by financial institutions only at account opening. And it was not intended to impose duplicative requirements on financial institutions," McHenry's staff wrote in a release. "The process established in [the CTA] was intended to fully facilitate a financial institution's responsibility under the [customer due diligence] regulation by requiring covered companies to directly provide their information to the Department of the Treasury."

42 state attorneys general, though supportive of the rule's goals, believe it needs work. They say onerous privacy guardrails would make law enforcement's access to the registry inefficient and slow. In a written comment, the group of state AGs object to a provision compelling non-federal law enforcement entities to provide a separate written justification directly to FinCEN for registry access, and say they should be able to self-certify that they have orders from "courts of competent jurisdiction."

Anti-corruption non-profit Transparency International, on the other hand, appreciated that the rule allows any federal agency to serve as an intermediary for foreign BOI data requests. The organization urged FinCEN to ensure data is vetted.

"We strongly encourage FinCEN to utilize existing government information to verify the accuracy of reported BOI. Real-time, automated verification of BOI will provide a minimum level of assurance that BOI is accurate and reliable," they wrote in a comment letter. 

A non-partisan alliance of more than 100, national and international organizations—The Financial Accountability and Corporate Transparency Coalition—said FinCEN should remove the need for non-federal law enforcement to obtain a "court order" to access the directory, clarify who will grant authorized users registry access, verify BOI information submitted, and allow banks to access the information for overall AML compliance, rather than the current narrow due diligence.

"As currently drafted, this second rule has the potential to unnecessarily complicate access to the beneficial ownership database established under the CTA to a degree that could seriously impact the efficacy of the law as a whole," Ian Gary, executive director of the FACT Coalition said in a release. "The Treasury Department should substantially revise this proposed rule to address weaknesses that, if left in place, would undermine U.S. national security and global leadership in the fight against corruption."