Preparing for Beneficial Owner Reporting: What Fintechs and Other Companies Need to Know
Companies operating in the U.S. are required to report information to FinCEN about their beneficial owners.
CCPA Compliance for Fintechs and Partner Banks Until Now
In January 2021, the US Congress passed the Corporate Transparency Act which requires companies operating in the U.S. to report information to FinCEN about their beneficial owners, individuals who own or control a significant portion of a company.
Although some financial institutions and fintechs are exempt from this requirement, most small corporations and LLCs will need to comply with the reporting requirements starting from January 1, 2024.
In December 2022, the US financial regulatory agency FinCEN proposed a rule that would allow financial institutions to access the registry of beneficial ownership information. Recently, FinCEN updated its guidance to help companies comply with the BOI reporting requirements.
Shelby Schwartz, Counsel at Mitchell Sandler, discusses the beneficial owner reporting requirements.
Who Will Need to Comply with BOI Reporting?
Generally, most small corporations and LLCs will need to report their beneficial ownership information to FinCEN. However, there are several exemptions that will relieve most financial institutions and many fintechs from reporting.
Some of the available exemptions include:
FDIC-insured banks
Federal or state credit unions
Bank holding companies
Certain money transmission and money services businesses
Certain SEC-registered entities
Financial market utilities
Certain subsidiaries of exempt entities
Large operating companies
Large operating companies are defined as any company with at least 20 full-time employees, more than $5 million in gross receipts or sales, and an operating presence at a physical office in the United States.
If a fintech or other business doesn't meet all three requirements for this exemption or doesn't qualify for any other exemption, they'll need to report their BOI to FinCEN starting on January 1, 2024. The exemptions mentioned here are only some of the exemptions available, so it will be important for each business to check the full list to see if it, along with any parent, subsidiary, or affiliate entity associated with the business, will be excluded.
Banks will also have many business customers that need to comply with the BOI reporting requirements, so it's important for them to stay up-to-date on the regulations.
What’s In the New FinCEN Guidance?
On March 24th, the US financial regulatory agency FinCEN released new guidance for companies on reporting their beneficial owners' information. They issued answers to Frequently Asked Questions (“FAQs”), published one-pagers on Key Filing Dates and Key Questions, and posted an Introductory Video and an Informational Video designed to assist prospective filers.
Beneficial owners are individuals who own or control a significant portion of a company. The guidance specifies that companies must report any individual who owns or controls at least 25% of the company or has substantial control over it.
Each company must report:
Its legal name and any trade name or DBA
Its address
The jurisdiction in which it was formed or first registered, depending on whether it’s a U.S. or foreign company
Its Taxpayer Identification Number (TIN)
For each beneficial owner, the company must report:
The individual’s legal name
Birthdate
Address (in most cases, a home address)
An identifying number from a driver’s license, passport, or other approved document for each individual, as well as an image of the document that the number is from.
Fintech companies that do not qualify for exemptions should review the regulatory guidance in preparation for the new reporting requirements starting from January 1, 2024. Companies should check whether they can identify their beneficial owners and whether any confidentiality agreements they have in place may need to be revised.
What BOI Registry Access Will Banks Have?
The Corporate Transparency Act allows FinCEN to disclose information about a company's beneficial owners to:
U.S. government agencies
Certain foreign agencies and authorized persons
Financial institutions using the information for certain KYC purposes
This information will not be accessible to the public, and cannot be requested under the Freedom of Information Act.
Banks that want to access information from the BOI registry should review the Notice of Proposed Rulemaking (NPRM) issued in December 2022 and its accompanying Fact Sheet. The proposed regulation states that banks and other financial institutions can only request BOI information from FinCEN for legally required customer due diligence. They cannot run open-ended queries or receive multiple search results. Instead, banks must provide specific identifying information about a reporting company and receive an electronic transcript with that company's BOI in return.
FinCEN is currently reviewing feedback on the NPRM and will issue a final rule in the coming months.
For questions please do not hesitate to contact Shelby Schwartz or Chris Napier.
About The Author
Shelby Schwartz is Counsel at Mitchell Sandler. Her practice focuses on financial regulatory and compliance matters, with a concentration on deposit accounts, financial data privacy, and state lending laws. She advises a wide variety of financial services providers, from banks to financial technology companies. Shelby has successfully assisted clients in responding to regulatory inquiries and enforcement matters, including those brought by the Consumer Financial Protection Bureau, the Department of Justice, and various state regulators. She regularly assists clients in assessing their deposit account fee structures and deposit account agreements, analyzing data breach obligations, developing privacy policies, and developing financial products and services within appropriate regulatory models. Learn more about Shelby Schwartz
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