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Overview

There is an industry-wide requirement for banks and payment providers to know the individuals they do business with.
The Financial Crimes Enforcement Network (FinCEN) has issued a Customer Due Diligence (CDD) rule to amend existing BSA regulations. This rule clarifies and strengthens customer due diligence requirements for financial institutions.
The rule outlines explicit customer due diligence requirements and imposes a new requirement to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions. FinCEN intends that the legal entity customer identify its ultimate beneficial owner(s). Straddle is legally obligated to follow a specific set of steps before we can open a Straddle payments account.

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Key points

The CDD Rule, which amends Bank Secrecy Act regulations, aims to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder their ill-gotten gains.
The CDD Rule requires covered financial institutions and service providers like Straddle to identify and verify the identity of the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.

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Core requirements

The CDD Rule has four core requirements. It requires covered financial institutions to establish and maintain written policies and procedures that are reasonably designed to:
  1. Identify and verify customer identity - Establish the identity of all customers opening accounts
  2. Identify beneficial owners - Identify and verify the identity of the beneficial owners of companies opening accounts
  3. Understand customer relationships - Understand the nature and purpose of customer relationships to develop customer risk profiles
  4. Conduct ongoing monitoring - Monitor to identify and report suspicious transactions and maintain updated customer information
Financial service providers must identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and/or an individual who controls the legal entity.

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What is a beneficial owner?

A beneficial owner is an individual, if any, who holds 25% or more equity ownership of your business and/or at least 1 individual who has “significant control.”

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Who has significant control?

There will always be an individual with significant responsibility for managing the legal entity such as:
  • Chief Executive Officer
  • Chief Financial Officer (CFO)
  • Chief Operating Officer
  • Managing Member
  • Vice President
  • Treasurer
  • Any other individual who regularly performs similar functions

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Why is this information required?

To help the government fight financial crime, Federal regulation requires covered financial institutions to obtain, verify, and record information about the beneficial owners of legal entity customers. Legal entities can be abused to disguise involvement in:
  • Terrorist financing
  • Money laundering
  • Tax evasion
  • Corruption
  • Fraud
  • Other financial crimes
Requiring the disclosure of key individuals who own or control a legal entity (the beneficial owners) helps law enforcement investigate and prosecute these crimes. A legal entity is a corporation, limited liability company, partnership, and any other similar business entity formed in the United States or a foreign country.

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Who needs to provide this information?

We’ll request this information from:
  • The person who opens a new Straddle account on behalf of a legal entity
  • The primary account user for an existing account
Users must provide the ultimate beneficial owner who must be a natural person.

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Required information

We need to collect the following information for at least 1, and a maximum of 5 beneficial owners:
Information RequiredDetails
NameFull legal name
AddressCurrent residential address
Date of birthComplete date of birth
IdentificationSocial Security Number (or passport number for foreign persons)

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Beneficial owner criteria

Each beneficial owner must be a natural person (not a legal entity) who satisfies the following criteria:
  • Ownership requirement: Each individual, if any, who directly or indirectly owns 25% or more of the equity interests of your legal entity company
  • Control requirement: An individual with significant responsibility for managing your legal entity company (e.g., CEO, CFO, COO, Managing Member, General Partner, President, Vice President, or Treasurer)
You must provide information for individuals who satisfy the above ownership criteria, either directly or indirectly, through multiple legal entities.

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Multi-level ownership example

When a business is owned by another company, you must trace ownership through multiple corporate structures: Example scenario:
  • Allan owns 30% of Customer B indirectly through his direct ownership of Company A → Allan is a beneficial owner
  • Betty owns 20% indirectly through Company A plus 16⅔% through Company B (total 36⅔%) → Betty is a beneficial owner
  • Carl and Diane each own only 16⅔% indirectly through Company B → Neither is a beneficial owner (below 25% threshold)

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Privacy and security

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Will credit scores be affected?

Straddle will never use personal information to generate a hard credit inquiry. The information provided will be used strictly for ID verification purposes.

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Is the information safe?

We follow industry best practices for data security and are subject to annual security audits. All Straddle application data:
  • In-transit: Protected with TLS 1.2 Asymmetric Encryption
  • At-rest: Protected by Transparent Data Encryption (TDE) in Microsoft Azure

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Exemptions from CDD rule

The following entities are excluded from the definition of “legal entity customer” since beneficial ownership information is generally available from other credible sources:

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Financial institutions and government entities

  • Financial institutions regulated by a Federal functional regulator or State bank regulator
  • Departments or agencies of the United States, any State, or political subdivisions
  • Entities established under U.S. or State laws that exercise governmental authority
  • Non-U.S. governmental departments, agencies, or political subdivisions engaging only in governmental activities

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Publicly traded and registered entities

  • Entities whose common stock is listed on NYSE, American, or NASDAQ stock exchanges
  • Entities where at least 51% of common stock is owned by a listed entity
  • Issuers of securities registered under Section 12 of the Securities Exchange Act of 1934
  • Investment companies registered with the SEC
  • Investment advisers registered with the SEC
  • Exchanges or clearing agencies registered under the Securities Exchange Act

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Regulated financial services

  • Registered entities, commodity pool operators, commodity trading advisors with CFTC
  • Public accounting firms registered under the Sarbanes-Oxley Act
  • Bank holding companies or savings and loan holding companies
  • Insurance companies regulated by a State
  • Financial market utilities designated by the Financial Stability Oversight Council
  • Foreign financial institutions where regulators maintain beneficial ownership information

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Limited requirements

The following legal entity customers are subject only to the “controlling person” portion of the beneficial ownership requirement:
  • Pooled investment vehicles operated or advised by non-excluded financial institutions
  • Nonprofit corporations or similar entities that have filed organizational documents with appropriate State authorities

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Additional resources

Customer Due Diligence Requirements

Read the complete CDD requirements for financial institutions

FinCEN FAQ

View frequently asked questions about customer due diligence requirements