Removing Barriers Blog

FinCEN Finalizes Customer Due Diligence Rule
Posted May 09, 2016 by CUNA Advocacy

The Financial Crimes Enforcement Network (FinCEN) has finally finalized its CDD rule, which was proposed in 2014. Although we are still reviewing the rule, we are disappointed that FinCEN did not pursue any credit union-specific exemptions.

While we support the objective of improving the tracking of money laundering and terrorist financing, we continue to have significant concerns with the regulatory compliance costs that this rule will impose on credit unions. These costs—including those related to credit union verification of “beneficial owners”—are likely to outweigh the purported benefits to FinCEN.

As we described in our January 2016 letter, we disagree with the approach of FinCEN’s Regulatory Impact Assessment (RIA). In the RIA, FinCEN inappropriately took the position that for the betterment of society as a whole, financial institutions must absorb the additional regulatory costs associated with the CDD rule. As described in the RIA, “Although limitations prevent us from fully quantifying all costs and benefits attributable to the CDD rule, the U.S. Department of the Treasury is confident that the proposed rule would yield a positive net benefit to society.” We feel that this is a flawed approach to a cost-benefit comparison, since the costs of these requirements are essentially taxes on financial institutions. Since credit unions are already paying for compliance costs related to prudential and consumer protection regulations, additional costs from this third regulatory regime are particularly burdensome.

We appreciate that FinCEN listened to our recommendation regarding a delayed effective date, which is not until May 2018. Although this is a final rule, we will continue to push FinCEN for improvements.