As part of our ongoing efforts to improve our financial and security processes, we are instituting additional controls on new payment accounts. This involves collecting additional information on owners and requiring information be entered by individuals with significant control over the entity. As we have discussed, we are part of the banking network, and require similar information and signing authority as banks to process money flows.
The background of this change started in May 2016 when the US Treasury Financial Crimes Enforcement Network (FinCEN) issued its final rule on Customer Due Diligence (CDD) Requirements for Financial Institutions (including Payment Facilitators like RunSignUp). The new rule requires covered financial institutions to identify and verify the identity of the Beneficial Owners of all legal entity customers. As a registered Payment Facilitator we are required to follow this rule beginning no later than May 11, 2018. We have made some updates to our onboarding requirements and effective tomorrow April 25th, all new payment accounts set up on RunSignUp will be required to comply with the new rule. For existing advanced payment account owners there is no obligation for RunSignUp to update payment account information for the new regulation.
The rule requires us to collect identifying information on Beneficial Owners that fall into two categories. The first is the Control Prong where we will ask for identifying information (including last 4 digits of the SSN) on an individual who who has “significant responsibility to control, manage, or direct the legal entity”. This is someone like a CEO, President, CFO, COO, Managing Member, General Partner, Vice President or Treasurer of an entity. The second is the Ownership Prong where we will collect identifying information (including full SSN) on any Owner who owns 25% or more of the entity setting up the payment account. Neither of these two things are new to RunSignUp. We have been collecting information on the “Principal” of an entity and ownership information on business entities for over 3 years, since we became a Payment Facilitator. The primary difference now is that the Principal has to be an individual who has significant responsibility to control, manage, or direct the legal entity. It cannot be a non-employee or authorized representative as we have allowed in some instances in that past.
What kinds of entities are subject to this rule? The rule includes any entity created by a filing with a state office or secretary of state including corporations, partnerships, LLC’s and non-profit organizations such as 501(c)(3)’s. Those entities exempt from the rule include individuals, sole proprietorships, banks and government entities including public schools. For those entities not subject to the rule we will still ask for information on the individual setting up that account (including SSN for individuals and sole proprietors) to verify who we are doing business with, but we will not be required to verify that the individual meets the Control Prong test. We will not ask for ownership information on non-profit organizations and those entities exempt from the rule. You can rest assured that we will take precautions to make sure the information we collect is secure.
FinCEN, after consultation with the staffs of the Federal functional regulators and the Department of Justice, has determined that more explicit rules for covered financial institutions with respect to customer due diligence (CDD) are necessary to enhance financial transparency and help to safeguard the financial system against illicit use. Requiring financial institutions (including Payment Facilitators like RunSignUp) to perform effective CDD so that they understand who their customers are and what type of transactions they conduct is a critical aspect of combating all forms of illicit financial activity, from terrorist financing and sanctions evasion to more traditional financial crimes, including money laundering, fraud, and tax evasion.
We have updated our payment account onboarding processes to make complying with this rule as easy as possible. We are committed to the efficient and secure processing of race proceeds on behalf of our customers and we view this rule change as another way that we are keeping our platform safe and compliant with all necessary financial system rules.