Effective May 11, 2018, new Financial Crimes Enforcement Network rule, “Customer Due Diligence Requirements for Financial Institutions” (the CDD Rule),1 requires covered financial institutions2 to identify and verify the identity of beneficial owners of legal entity customers opening accounts, subject to certain exceptions. Capital markets participants involved in banking, underwriting and placement agency relationships have been evaluating the extent to which it would apply to capital markets, bank financing and other transactions. Although FinCEN has not provided definitive guidance, “accounts” will likely be interpreted to encompass underwriting and placement agency relationships in capital markets transactions.
Investment banks and deal counsel have started to develop processes to ensure efficient and effective compliance with the CDD Rule. Both the Securities Industry and Financial Markets Association (SIFMA) and the Loan Syndications & Trading Association (LSTA) have published memoranda and market advisories to propose practices that institutions may use to comply with the requirements of the CDD Rule in capital markets and bank financing transactions.3
This Sidley Practice Note addresses some of the issues faced by issuers and investment banks, acting as underwriters or placement agents in public and private capital markets transactions, in complying with the CDD Rule and approaches developed in response to these issues. The market is still in the early stages of adapting to the CDD Rule, and there will undoubtedly be further developments. Covered financial institutions should consult with their anti-money laundering (AML) personnel to ensure that any requirements under the CDD Rule related to capital market transactions are being addressed in a manner consistent with their AML program for such transactions.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.