FinCEN Grants Exceptive Relief To Streamline Beneficial Ownership Verification Requirements For Financial Institutions

What You Need to Know

Key Takeaway #1: FinCEN will no longer require covered financial institutions to identify and verify beneficial owners of legal entity customers each time the customer opens a new account at the institution, but rather only in certain circumstances.

Key Takeaway #2: FinCEN will instead require certain financial institutions to identify and verify the identities of such beneficial owners: (1) when a legal entity customer first opens an account with a covered financial institution; (2) when the covered financial institution has knowledge of facts that would reasonably call into question the reliability of beneficial ownership information previously obtained about the legal entity customer; and (3) as needed based on a covered financial institution's risk-based procedures for conducting ongoing customer due diligence. For (3), covered financial institutions may rely on the customer's certification that its beneficial ownership information has not changed, unless there is reason to question this.

Key Takeaway #3: The exceptive relief is the latest instance of recent efforts by the Department of the Treasury to modernize and eliminate unnecessary burdens associated with BSA rules; covered financial institutions are likely to welcome the relief.

On February 13, 2026, the Financial Crimes Enforcement Network ("FinCEN") issued an exceptive relief order paring back customer due diligence ("CDD") requirements for certain financial institutions. Specifically, FinCEN's order ("Order") exempts banks, securities broker-dealers, mutual funds, and futures commission merchants and introducing brokers in commodities ("Covered Institutions") from the requirement to identify and verify beneficial owners of legal entity customers at each new account opening, instead allowing the Covered Institutions to adopt a more tailored, risk-based approach to obtaining and verifying beneficial ownership information.

Background

In a 2016 rule (CDD Rule), FinCEN introduced new customer due diligence requirements for Covered Institutions. Under the CDD Rule, Covered Institutions were required to collect and verify identifying information about the beneficial ownership of their legal entity customers each time the customer opened a new account — even if minimal time had elapsed between each account opening, or the institution had no reason to believe that the previously verified beneficial ownership information had changed. This led to complaints from some Covered Institutions that the rule was too broad.

What Does the Order Change?

As described above, the Order grants exceptive relief to Covered Institutions from the CDD Rule's requirements, promulgated in 31 C.F.R. § 1010.230(b), to identify and verify beneficial owners of legal entity customers at each new account opening. Instead, Covered Institutions are now required to identify and verify beneficial owners only under the following three scenarios:

1. When a legal entity customer first opens an account with the Covered Institution;
2. Any time thereafter when the Covered Institution has knowledge of facts that reasonably call into question the reliability of the previously obtained beneficial ownership information; and
3. As needed based on the Covered Institution's risk-based procedures for ongoing customer due diligence.

Furthermore, with respect to the third category above, Covered Institutions may rely on previously-submitted beneficial ownership information for ongoing customer due diligence processes, so long as the customer certifies or confirms (orally or in writing) that the information remains up-to-date and accurate, the institution retains a record of such certification or confirmation, and the institution has no knowledge of facts that would reasonably call into question the reliability of previously-provided information.

Covered Institutions are not required to take advantage of this relief and may continue to collect and verify beneficial ownership information at each account opening if they prefer a more conservative approach.

FinCEN said it was providing the relief in the Order based on: (1) comments it received from industry that the rule continues to be burdensome; (2) a January 31, 2025, Executive Order establishing a policy to "alleviate unnecessary regulatory burdens placed on the American people"; and (3) a requirement in the Corporate Transparency Act to revise the agency's 2016 CDD rule establishing the beneficial ownership requirement.

The Order builds on relief FinCEN previously has provided in 2018 frequently asked questions ("FAQs") and other exceptive relief determinations.

What the Order Does Not Change

Beyond this relief, the Order does not change Covered Institutions' existing AML/CFT obligations under the Bank Secrecy Act ("BSA") and its implementing regulations, including ongoing monitoring, risk-based customer due diligence, maintenance of written beneficial ownership verification procedures, and all other applicable BSA requirements. Nor does it affect any of the exemptions from beneficial ownership identification and verification requirements set forth in 31 C.F.R. § 1010.230(h).

Practical Implications

The Order eases the administrative burden on Covered Institutions by eliminating repetitive beneficial ownership collection at each new account opening for existing customers, towards the initial customer onboarding process and risk-based ongoing due diligence thereafter. The third element of the relief — allowing customers to use certifications in response to risk-based refreshes of customer diligence information — will be especially relevant and useful for banks, which conduct large numbers of such reviews.

Covered Institutions that elect to take advantage of the exceptive relief may wish to consider the following steps:

• Revise CDD and CIP processes to reflect that beneficial ownership information will be collected and verified at each initial customer onboarding, and recollected or re-verified only when risk-based triggers or reliability concerns warrant it.

• Establish protocols for obtaining, documenting, and retaining customer confirmations and certifications of previously-provided beneficial ownership information, including those made verbally, under the third element described above, as required by the Order.

• Define clear escalation standards that identify the specific circumstances under which staff must seek updated or reconfirmed beneficial ownership information — such as when there is a reason to believe that previously collected information is no longer accurate or reliable.
• Conduct a risk-based assessment to identify higher-risk legal entity customers that should be subject to more frequent review and re-verification of beneficial ownership information, and incorporate those findings into the institution's risk-rating methodology.