Loan Renewals and Beneficial Ownership

Just wondering how others are looking at loan renewals and the BO? Do you plan on renewals and extensions to have a new BO form completed? I am not sure what the ‘normal monitoring’ really means. We plan on the original form being scanned into each file. At renewal pull it out (original) and ask if this is still correct, then have them initial and date?

A renewal, extension or other change in terms is not, in my opinion an account opening. Therefore, I don't think a new Certification would need to be completed.

A refinance (in which the indebtedness is being extinguished and replaced) would be an account opening.

fmissle, the FinCEN CIP FAQ's disagrees with you.

"For purposes of the CIP rule, each time a loan is renewed or a certificate of deposit is rolled over, the bank establishes another formal banking relationship and a new account is established."

Unless FinCEN publishes updated guidance, I would consider a loan renewal a new account and obtain a new certification form.

Previous thread

Thank you all, hoping for an updated FAQ that gives different guidance.

We're all hoping for some clarification on this question and the issue of auto-rollover time deposits.

Sorry for the incorrect guess!

Thanks Brian and Ken for the information.

I was just curious if an updated FAQ has been released yet? I attended a seminar yesterday where the instructor basically told us that we would have to obtain BO information on loan and CD auto renewals. We are getting ready to finalize our policy and procedures and was just curious if anything had changed on this or not?

Thanks!

Nope - Nada - Nothing

I guess asking "what are they waiting on" would be futile........ :-P

Thanks Randy!

What Bryan stated is the OCC's interpretation of the regulation as it stands as well. Not happy about it either !!!

Please don't let the OCC know, but they are not empowered to interpret the Bank Secrecy Act, FinCEN is. The OCC is the deputy, but FinCEN is the sheriff.

I was thinking about this all night because I am ready to go on this with the exception of this renewal issue.

With a loan renewal the borrower has to sign a NEW agreement.

With an auto-renew CD the initial disclosure/agreement with the customer PROVIDES FOR THE RENEWAL IN ADVANCE. We don't meet with or have contact with the customer each time the CD renews.

I'm sure others have thought of this as well; however, I couldn't locate anything in the threads. It simply doesn't make any sense and is impractical to require a CBO for auto-renew CDs.

Am I risking too much by using this thought process?

I'm not going to quote the Helpline as saying anything, anything at all because they have said slightly different things to others. However, my contacts with them have suggested that the presence or absence of customer contact in connection with automatically renewable time deposits will be mentioned in the FAQ as a deciding factor. Ask them.

I really hope this is included in a new FAQ as this approach would be (somewhat) reasonable form a logistical perspective.

This was the same response I received from FinCEN.

Great! I left a message for FinCEN yesterday. Hoping to receive a call back today.

I left a message for FinCEN yesterday. This is the transcribed message they left for me today. Seems to be different from what Ken stated above.

"This message is in response to your call on March 8th asking for clarity regarding renewals of loans and auto-renewing certificates of deposit. To answer your question, each time a loan is reviewed or a certificate of deposit rolls over, the bank establishes another formal banking relationship and a new account. So for financial services established before, but renewed after May 11, 2018, covered financial institutions must obtain certified beneficial ownership information of the legal entity customer of such products and services; however, to the extent that the legal entity customer or the financial service or product, in this case a rollover CD remains the same, and the beneficial ownership information obtained previously remains accurate and up-to-date the financial institution would not be required to collect the beneficial ownership information again. In this situation the financial institution may use existing information on the legal entity customer and its beneficial owners to renew a financial service or product provided the legal entity customer certifies or otherwise confirms that such information is up-to-date and accurate and the financial institution does not have information of any facts that would call into question the reliability of the information. In this particular scenario, i.e., a renewal of a loan or a revolving CD, the covered financial institution and the legal entity customer may enter into an arrangement that reasonably ensures that the covered financial institution will have up-to-date and accurate beneficial ownership information at each renewal or rollover. The arrangement will be considered the certification or confirmation from the customer and should be documented and maintained as such."

Please note, Ken went out of his way not to say anything... No matter what I attributed to them, me telling you what the Helpline said is worthless to you. They need to say it to you for you to responsibly incorporate it into your decision making.

If this is the final wording, it's a place to start. Assuming you have the customer's beneficial ownership information, thereafter include a piece of paper with the maturity notice asking them to let you know if there has been a change in beneficial ownership. Or, more tightly focused, asking them to sign and send something back to you saying there are no changes or providing you with an updated copy. (If it's a legal entity customer's account you are not required to send a maturity notice, but I'm guessing your system spits them out anyway.)

Selling only single maturity time deposits to legal entity customers also works... The automatically renewable time deposits would have to be significant to my ALM for me to do anything dramatic to keep them.

I agree with you Ken. Anyone can call and receive a different response. My point was that what they told me was different from what others were told. We receive an email with a .wav attachment when we receive a voice mail. I will be keeping it.

I was hoping to hear that the presence or absence of customer contact would be a deciding factor so that I could rely on it and move forward with that approach. I was not expecting this.

For most of us, it's not likely that we have the BO information on existing LECs with renewing CODs.

I like the idea of only selling single maturity time deposits to legal entities.

Hmmm, maybe (for auto renewals) I can have the customer sign an Appendix A wherein the customer agrees to give the bank notice of any change in beneficial ownership and I can just include a copy of that with each renewal notice as a reminder.

Note: This isn't real. It's like lying in the grass and saying what clouds look like. When they publish something substantive, move. Otherwise...

Oh an elephant!

I have a follow up question. I know you need the beneficial ownership information on a loan renewal. What about a 90 day extension on a commercial loan where the borrower is signing a document extending the maturity date for 90 days based on the same terms as the original note. I feel the information needs to be collected, what is your opinion?

Renewal/Extension - no different in my mind.

We asked FinCEN because this is a practice of ours. Yes, the certification is required. If you expect to make future extensions while the loan is active, also get the signed statement they will notify you of any changes to keep from having to get the certification on every extension.

Thanks for you help!

"Also get the signed statement they will notify you of any changes to keep from having to get the certification on every extension."

I'm not sure so just tossing it out there:

I thought obtaining a statement that we will be advised of changes in beneficial ownership was an acceptable approach for eliminating the need for a new BO form when a CD auto-renews at maturity but wasn't acceptable as it relates to loan triggering events. Rather the form would need to be completed at every loan triggering event - even if such a statement to provide us notice of changes was in place.

Again, don't know for sure but you may want to confirm the contemplated handling is acceptable.

Question 12 discusses CD and loan renewals.

I have a question on this. I don't have a problem with CD renewals but if you have a loan that has an extension of the maturity date or a change in interest rate or other terms, is FAQ question 12 saying you can have them certify their beneficial ownership form is correct and that they will notify you of any changes and then if they had to extend the loan again, you would be covered? I guess the reason this confuses me is because on a CD you know it could auto renew forever but a loan wouldn't necessarily ever have more than one renewal, but it could.