Podcast: Beneficial Ownership Defined And Analyzed

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As Rich Consulting president Deana Rich explains in this week’s PaymentFacilitator.com podcast – a re-run from August 24 – the Treasury’s beneficial ownership rule announced in May will require banks to perform KYC on all owners with more than 25 percent ownership as well as the person that manages or runs the business, and banks will likely turn that extra work over to ISOs or PFs underwriting merchants or submerchants.

There are different impacts to banks and their PF partners based on the size and ownership/operation structure of the merchant. The largest category of submerchants are sole proprietors or owned by one person, who also runs the business. All PFs are performing KYC on these owners and therefore there is no change to this category.

Some single-owner companies, as long as they are not sole proprietors, that are managed or run by someone else are major targets for regulators, because nominee owners are often used to hide the beneficial owners of untoward businesses. PFs today are only performing KYC on the owners. Now they must do a second KYC on the person running the business.

Some of the firms underwritten by PFs will have multiple owners with more than 25% ownership. Historically in these cases, many PFs would perform KYC on one owner only, sometimes with a minimum threshold for total ownership, like some PFs require a total of 50% of ownership to be represented. Now, a PF must perform KYC on each and every owner with 25% or more ownership, and if not owner-managed, one person from the management team or who runs the company. This means performing KYC on as many as five owners and managers.

Rich said she’s confident in fairly smooth adjustments to the rule, not least because the affected parties have until May 2018 to adapt. Technology will help as will the fact that banks had been requiring more and more information before the new rule so that will lessen the shock of extra work.

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