The Beneficial Ownership Rule was created by the Financial Crimes Enforcement Network (FinCEN) as the “Fifth Pillar” of an effective AML program. This rule makes it compulsory for financial institutions to create and implement policies regarding the identification of each beneficial owner of a given legal entity.
Generally, beneficial ownership data is collected:
Each time a business opens an account
After making changes to an organization's beneficial ownership
When requested by a financial institution or regulatory authority
According to FinCEN guidance, an individual who holds 25% or more equity interest in a legal entity (directly or indirectly) is considered a beneficial owner. However, each institution has the right to take a risk based approach and institute stricter equity thresholds. In fact, many financial institutions choose to characterize a beneficial owner as someone who has as little as 10% equity interest -- this is especially true for any legal entity operating within a high risk industry such as cannabis.
While the Beneficial Ownership Rule went live well after FinCEN’s 2014 guidance “BSA Expectations Regarding Marijuana-Related Businesses”, this information is often required as part of the state licensing process. This means that the client has already taken the proper steps to identify all beneficial owners and should have the necessary documentation available upon request. In fact, it could be considered a red flag if there is a considerable amount of resistance from the business regarding this requirement.
Again, all financial institutions are encouraged to take a risk-based approach when developing their cannabis banking program. If the institution is operating in a state where the beneficial ownership threshold is higher than what is mandated by their existing policies or they want to take a more granular approach to their ongoing customer due diligence, they have every right to implement this approach.