Key Insights
- FinCEN exempted US entities from federal BOI reporting, but community financial institution separate Customer Due Diligence obligations remain intact.
- Community financial institutions' files may be an important remaining source of beneficial ownership information for some US business customers.
- Institutions should retrain staff, refresh customer communications, and update written procedures to maintain compliance.
In a tangled pile of yarn, it takes a lot of time and effort to figure out which ends are connected. For some people, though, that’s the appeal. An online group called “Knot a Problem!” brings together volunteer “detanglers” who tackle knitters’ snarled yarn for the sheer satisfaction of restoring order. Knitters can send their seemingly hopeless tangles to a volunteer, covering the shipping costs, and get their yarn back ready for another project. The Smithsonian reported back in 2015 that the group had more than 2,100 members — an entire community devoted to a task many people would happily avoid.
For community financial institutions (CFIs), tracing back a business’s ownership connections is more than a puzzle — it is an essential part of customer due diligence. FinCEN has permanently exempted US companies and US persons from federal beneficial ownership reporting, but CFIs’ separate customer due diligence obligations remain. Understanding which requirements have changed, and which remain, is critical to keeping those ownership threads straight.
How A Major Change to Beneficial Ownership Is Affecting CFIs
The final rule, effective August 14, 2026, made permanent exemptions introduced in March 2025, but it did not change CFIs’ separate customer due diligence (CDD) obligations. Under FinCEN’s CDD Rule, covered financial institutions must identify and verify the identities of beneficial owners of covered legal-entity customers, subject to applicable exclusions and exemptions. Generally, this includes each individual who directly or indirectly owns at least 25% of the entity’s equity interests and one individual with significant responsibility to control, manage, or direct it.
However, separate relief issued by FinCEN in February 2026 allows CFIs to avoid repeating beneficial owner identification and verification every time an existing legal-entity customer opens another account. CFIs must still identify and verify beneficial owners when the customer first opens an account, when facts reasonably call existing ownership information’s reliability into question, and when required by their risk-based ongoing CDD procedures.
What this could mean is that CFI files could be the primary record of beneficial ownership for some banking customers. According to the agency’s press release, FinCEN says it will delete information about individuals it reasonably believes are US persons. Foreign reporting companies still must report on foreign beneficial owners, and FinCEN is not deleting that data. Foreign entities that qualify as reporting companies must report required information about foreign beneficial owners to FinCEN. Their banks do not submit those reports merely because they hold the entities’ accounts, and foreign ownership alone does not make a US-created company subject to reporting.
Although federal reporting requirements have narrowed, accurate beneficial ownership records remain an important part of CFIs’ customer due diligence and fraud-prevention efforts. Getting beneficial ownership wrong at a systemic level can bring fines, third-party audits, and regulators freezing a bank’s ability to open new branches or participate in mergers and acquisitions. Deficiencies in beneficial ownership identification and verification can create compliance risk.
What CFIs Can Do to Adapt to BOI Changes
CFIs should review how the reporting changes and separate CDD relief affect their customer communications and account-opening procedures. The goal is to help employees explain ownership-information requests clearly and apply the institution’s requirements consistently.
Otherwise, this change necessitates more quotidian actions. CFIs should consider the following practical steps:
- Retrain frontline staff. Help frontline staff distinguish between customers’ federal reporting obligations and the bank’s separate CDD requirements. Give employees clear talking points so they can explain why the CFI still requests ownership information even when a customer no longer needs to report it to FinCEN.
- Refresh customer communications. Review account-opening pages, FAQs, and customer communications for outdated reporting requirements. Clearly distinguish information customers must provide to the CFI from information they must report directly to FinCEN.
- Review and update written procedures. Incorporate the February 2026 relief and clarify when staff may rely on existing BOI and when they must obtain updated information. Address subsequent account openings, concerns about the reliability of existing records, and risk-based reviews. Include documentation and escalation steps so employees apply the procedures consistently.
The federal reporting changes do not eliminate CFIs’ responsibility to understand who owns and controls their business customers. The priority is clarity: help staff and customers distinguish between reporting to FinCEN and providing information to the bank. By updating communications and procedures, CFIs can apply the available relief without weakening customer due diligence.
