Beneficial Ownership for Loan Renewals
This Compliance Clip (video) explains when beneficial ownership information is needed for loan renewals. As Adam explains in this video, it is needed in some cases, but isn’t needed in other cases. Adam provides plenty of citations for views on this BSA topic.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about beneficial ownership rules for loan renewals. Specifically, this week, I got this question. The question says, “If we're modifying an existing loan, I understand we don't need to do a new beneficial ownership document, but do we need to recertify the document for the original loan? What we do is print off the existing form if the ownership hasn't changed and have the customer initial it. Is this a requirement, or can we stop doing this?” That's a great question, and this actually came from somebody who hasn’t been in the BSA world for some time.
The challenge with this is that we had the beneficial ownership rules but they were really a moving target when they came out. So we have to look at a couple of things because we received a set of frequently asked questions in 2016, another set in April of 2018, and then actually a delay a couple of times in the final rule in, I believe, September of 2018.
To answer this, let's start at the most recent ruling, which was September of 2018. That's really the final rule on how everything's settled in relation to loan renewals. What the guidance specifically says is this, accordingly, FinCEN is granting exemptive relief as a result of a number of things. And in there, of course is number two, which relates to our question of loan renewals. What it says is they’re granting exemptive relief for loan renewals, modifications and extensions of credit that do not require underwriting review and approval. They are basically saying that you can do a loan renewal or a modification as long as there is no underwriting review and approval, and you don't need to get new beneficial ownership information. Specifically, the example they give here is for example, setting a later payoff date. Maybe doing a simple modification. We're not doing an underwriting renewal and approval. So the bottom line here is that if the modification doesn't require underwriting and approval, you don't need to do a recertification at all.
However, what if your modification does involve underwriting and approval? So if there's an underwriting process and approval process, what happens? Well, in that case, we have to go back to the April 2018 Frequently Asked Question number 12. The Frequently Asked Question number 12 says this, “At the time of each subsequent renewal, if the customer certifies or confirms that the beneficial ownership information previously obtained is accurate and up-to-date, and the institution has no knowledge of the facts that would be reasonably call into question. Then you don't have to get the full beneficial ownership information from the customer.” In other words, you need to get full beneficial ownership information if your modification or renewal involves approval and underwriting, unless you have this workaround where you get them to recertify the information. Basically if you do have underwriting and approval, you either have to get full beneficial ownership information or get the recertification.
Going back to the original question, it sounds like your bank sometimes does involve underwriting and approval in your modifications and your renewals. So it sounds like you're getting the certification to cover you in the events that you do have the underwriting renewal and certification. That's what the rule says.
As you can see, it's quite complex, but hopefully this helps you explain it. Hopefully it made things a little bit easier for you, and that's all I really have for you today.