States should take charge of gathering beneficial ownership data

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Among the many regulatory shifts under the new administration is the Financial Crimes Enforcement Network's recent exemption of U.S. companies from reporting beneficial ownership information, or BOI. BOI refers to the individuals who ultimately own or control a company, directly or indirectly. Fincen argues that requiring U.S. companies to file this information is a "burdensome" regulation. Under the interim rule, they will no longer need to submit initial, updated or corrected BOI reports. However, foreign companies must still comply with these requirements.

Critics of BOI reporting raise concerns about privacy and data security. Some small-business owners fear government overreach or worry that disclosing ownership information could expose them to data breaches or misuse by unauthorized parties. It is important to note that this information isn't public — it's stored securely by Fincen and is only accessible to law enforcement and financial institutions conducting due diligence.

Another common concern is the compliance burden placed on small businesses, which may lack the time or resources to navigate new reporting obligations. While Fincen has provided guidance and support, the current design adds red tape and increases the risk of penalties for noncompliance. The result is a system that penalizes the very businesses it's intended to protect.

To make meaningful progress on transparency and fraud prevention, we should reconsider where this responsibility is allocated. A better solution would be to address the gaps at the state level, where there are currently no consistent requirements for collecting business ownership data. States could collect and relay this information to federal agencies, creating a unified, reliable system without placing the onus solely on individual business owners. Additionally, loopholes that allow third-party registered agent services to obscure true ownership should also be addressed.

The interim rule marks a significant shift; while it removes the reporting requirement for now, doing so comes at a cost. Without access to verified ownership information, businesses and financial institutions lose crucial insights that support trust and safety in the economy. This trade-off affects not just regulators but every company that relies on transparency to mitigate fraud and assess risk.

BOI was established to close a critical gap in business transparency. But rather than addressing coordination issues between state and federal systems, it placed the burden on small businesses. That imbalance should be corrected — not by eliminating the requirement, but by improving the system that supports it.

Regulation and compliance

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U.S. companies need reliable ownership data to detect fraud, assess risk and to build trust with counterparties. But the current approach forces small-business owners to manually maintain that system. We need to rethink this model by creating better data flows upstream and designing systems that make transparency a natural outcome of how businesses are formed and operated.

Globally, expectations for transparency are rising. As of March 2024, 149 countries have committed to beneficial ownership registries, including all G7 nations except the United States. By opting out of BOI reporting, the U.S. risks falling behind and may damage its credibility in global markets. Some states, such as Wyoming, could even be flagged as havens for illicit activity, complicating international cooperation and investment.

Still, reinstating the previous rule as-is isn't the answer. A smarter approach would modernize data collection, protect small businesses from excessive burdens and better align with global standards.

Between now and May 27, the public has an opportunity to weigh in on the interim rule. This is a moment to advocate for a more balanced and effective solution — one that protects small businesses, strengthens our compliance posture and supports a healthier financial ecosystem.

Submit your feedback to Fincen here.