KYC 2.0: Beneficial Ownership Rule Takes Effect This Week

With the effective date of FinCEN’s new beneficial ownership rule coming up this week, we hope you have your plans in place.

Still looking to understand the rule? We’ve pulled together some previous PaymentFacilitator coverage to help guide you through.

Treasury’s beneficial ownership rule, announced in May 2016, will require banks to perform KYC on all owners with more than 25 percent ownership as well as the person that manages or runs the business, and banks will likely turn that extra work over to ISOs or PFs underwriting merchants or submerchants.

Recently, attorneys from the payments practice at law firm Venable LLP explained some of the terminology associated with beneficial ownership. They also discussed in detail the reasons this rule for banks affects payment facilitators and other important reasons – beyond the new rule – for collecting ownership information.

In this 2016 podcast, Rich Consulting CEO Deana Rich introduces the change, walking listeners through her thoughts on possible reasons behind the change, and the ways technology can help PFs adapt.

As Rich explains in the podcast, banks have been asking ISOs and payment facilitators to perform more KYC duties, making this the next step in a natural progression.

PaymentFacilitator also broke down merchant categories into a “friction score,” indicating the level of impact each group was likely to have on payment facilitators’ KYC practices.

For example, the largest category of submerchants includes sole proprietors or businesses owned by one person. PFs are already performing KYC on these owners and therefore there is no change within this category.

But some of the firms underwritten by PFs will have multiple owners with more than 25% ownership. Historically in these cases, many PFs would perform KYC on one owner only, sometimes with a minimum threshold for total ownership.

Now, a PF must perform KYC on every owner with 25% or more ownership, and if the business is not owner-managed, one person who runs the company or is part of the management team. This means performing KYC on as many as five owners and managers.

All payment facilitators should consult with their acquirers and attorneys or other compliance advisers regarding any changes they need to make to adhere to this rule. But with some deep understanding of the requirements and a little help from their technology platforms, PFs can continue to provide the merchant-focused service they’re known for.