FinCEN streamlines CDD requirements, reducing compliance burden for covered financial institutions

The Financial Crimes Enforcement Network (FinCEN) issued an order on February 13, 2026 that grants exceptive relief to covered financial institutions[1] from the Customer Due Diligence (CDD) Rule’s requirement to identify and verify the identities of beneficial owners of legal entity customers at each new account opening (the Order).[2] The Order is another step forward in FinCEN’s efforts to modernize the compliance framework under the Bank Secrecy Act (BSA) and its implementing regulations, and will likely be well-received by covered financial institutions who have, since the CDD Rule was implemented, raised issues with the redundancy of collecting (and recollecting) beneficial ownership information from legal entity customers each time a customer opens an account. According to FinCEN Director Andrea Gacki, “This relief supports a more efficient, risk-based approach to customer due diligence and reduces unnecessary regulatory burden without weakening the foundational requirements that protect the U.S. financial system.” 

In the Order, FinCEN states that the exceptive relief is intended to meet the Trump administration’s policy to “significantly reduce the private expenditures required to comply with Federal regulations to secure America’s economic prosperity and national security …” and “alleviate unnecessary regulatory burdens placed on the American people.”[3] FinCEN also notes that the Order is part of the agency’s efforts to meet its obligations under the Corporate Transparency Act (CTA), which requires FinCEN to amend the CDD Rule to, among other things, reduce any unnecessary or duplicative compliance burdens on financial institutions and legal entity customers in light of the CTA.[4] Notably, FinCEN states that it anticipates making further changes to the CDD Rule through the rulemaking process and views the Order as supporting and informing those efforts. The Order was effective immediately upon its issuance and we encourage covered financial institutions to review and amend their CDD policies and procedures, as necessary and appropriate.

Scope of the Order’s exceptive relief

Under the Order, instead of identifying and verifying the identities of beneficial owners of legal entity customers at each new account opening, covered financial institutions may instead limit their identification and verification of beneficial owners to the following scenarios:

1. when a legal entity customer first opens an account with a covered financial institution; 
2. any time thereafter 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.

FinCEN notes that in Scenario 3, a covered financial institution may rely on beneficial ownership information previously obtained in accordance with the CDD Rule, so long as the customer certifies or confirms (verbally or in writing) that its beneficial ownership information is up-to-date and accurate.[5]

Background and context

Under the CDD Rule, which FinCEN issued in July 2016 (with a compliance date of May 2018), covered financial institutions are required to develop and implement appropriate risk-based procedures for conducting ongoing CDD, including: 

• Obtaining and analyzing sufficient customer information to understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile;
• Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information, including information regarding the beneficial owner(s) of legal entity customers;[6] and
• Establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of legal entity customers.

The CDD Rule requires that identification of beneficial owners occur “at the time a new account is opened.”[7] FinCEN defines the phrase, “new account” to mean “each account opened at a covered financial institution by a legal entity customer … .”[8]

Generally, the Federal banking agencies and FinCEN have expected covered financial institutions to identify and verify the identity of a legal entity customer’s beneficial owners each time the customer opens an account with the financial institution, no matter how little time passes between account openings. In response to feedback from covered financial institutions, FinCEN has, over the years, provided incremental relief from the CDD Rule’s beneficial owner identification and verification requirements in certain instances. For example, in 2018, FinCEN issued Frequently Asked Questions, which provide that a covered financial institution that has already obtained a CDD Certification Form (or its equivalent) for the beneficial owners of a legal entity customer may rely on the information in the Certification Form to fulfill the CDD Rule’s beneficial ownership requirements for subsequent accounts, provided the customer certifies or confirms (verbally or in writing) that the beneficial ownership information is up-to-date and accurate at the time each subsequent account is opened and the financial institution has no knowledge of facts that would reasonably call into question the reliability of such information.[9]

Industry reactions to FinCEN’s efforts to relieve the compliance burden under the CDD Rule, in addition to comments received in response to other regulatory initiatives, led FinCEN to consider providing broader relief to covered financial institutions, including the Order. Finally, the Order will require updates to the Federal Financial Institutions Examination Council’s BSA/AML Examination Manual to reflect the exceptive relief in the Order.

Looking forward

The Order offers another data point in the administration’s efforts to streamline compliance burdens under the BSA. Last October, for example, FinCEN and the federal banking agencies issued guidance intended to reduce suspicious activity reporting (SAR) obligations for financial institutions (discussed in our client update here), and the Office of the Comptroller of the Currency released examination procedures last November that are intended to reduce regulatory burdens for community banks (discussed in our client update here). Like the agencies’ updated SAR guidance and the OCC’s new examination procedures for community banks, the Order represents a targeted (yet significant) update to regulatory expectations, rather than a wholesale rewriting of the relevant regulations (such as FinCEN’s overhaul of the CTA). We expect further efforts will follow over the coming year as the administration continues to prioritize BSA reform.