Legal Q&A: Third-Party Accounts Covered by Beneficial Ownership Requirements

Q: Could Third-Party Accounts Such as IOLTA, IBRETA, and Guardianship Accounts be Covered by Beneficial Ownership Requirements?

A: Yes. A discussion in the preamble to the Customer Due Diligence Rule provides that the certification as to beneficial ownership must be completed for intermediated accounts. It is possible that accounts such as IOLTA, IBRETA, and Guardianship Accounts could be considered intermediated accounts.

Despite the discussion in the preamble, the rule itself does not specify coverage over these accounts. As such, there are some conflicting opinions on the matter. Ultimately, banks will need to make a decision based upon their own interpretation of the rule.

The beneficial ownership rules apply when a legal entity customer opens a new account. The rule discusses the concept of "intermediates" which can be found on page 29415 of the rule below. There, the discussion provides that "… a financial institution shall treat an intermediary (and not the intermediary’s customers) as its customer, the financial institution should treat the intermediary as its customer for purposes of this final rule." For example, this could be interpreted to provide that a law firm, real estate firm, or corporate guardian should be treated as a bank’s customer when opening an IOLTA, IBRETA, or guardianship account. If that results in a legal entity customer opening a new account, the final rule will apply.

Click here to read the final rule.

By, Scott Birrenkott