FinCEN Bows to Executive Order, Relaxes Customer Due Diligence Requirements

On February 13, 2026, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued an order that reduces the circumstances under which a covered financial institution (CFI) must obtain and verify beneficial owner information with respect to its legal entity customers. CFIs include U.S. banks, mutual funds, securities brokers and dealers, futures commission merchants, and introducing brokers in commodities. (Registered investment advisers were also scheduled to be included as CFIs, effective the first of this year, but that effective date has been extended pending further consideration by the current administration.)

The Problem

To reduce the risk of money laundering and terrorist activities, FinCEN’s customer due diligence (CDD) rule, in conjunction with rules of the CFIs’ other regulators, specifies in considerable detail the steps that CFIs must take to verify the required information. The CDD rule requires a CFI to take these steps whenever it opens an account for a customer that is a legal entity (rather than a natural person) — even if that customer already has an account with the CFI such that the CFI has previously obtained and verified the required customer beneficial owner information. Not surprisingly, CFIs have argued that such requirements for repetitive acquisition and verification of beneficial owner information are unjustifiably burdensome.

Although the order mentions a number of motivations for relaxing this aspect of the CDD rule, it very prominently recites FinCEN’s belief that such relaxation is consistent with the stated policy of President Trump’s Executive Order 14192, titled “Unleashing Prosperity Through Deregulation.” Specifically, FinCEN references that executive order’s intent to “significantly reduce the private expenditures required to comply with Federal regulations to secure America’s economic prosperity and national security and the highest possible quality of life for each citizen” and “alleviate unnecessary regulatory burdens placed on the American people.”

FinCEN’s Solution

The basic effect of FinCEN’s order is to loosen the prescribed customer due diligence procedures a bit, in order to permit CFIs to rely more on principles-based customer due diligence procedures that, as noted further below, the CFIs are required to maintain and administer.

Specifically, the order provides that a CFI will be required to perform the steps required by the customer beneficial owner rules only when one or more of the following circumstances apply:

1. The legal entity customer is opening its first account with the CFI.
2. At any time thereafter, the CFI has knowledge of facts that would reasonably call into question the reliability of the rules’ required beneficial owner information that the CFI most recently has obtained with respect to that customer. Although this permits a CFI to make a principles-based judgment about the reasonable implications of facts within its possession at a given time, some risk would remain that a regulator might later second-guess that judgment if a terrorist or money laundering problem later comes to light.
3. Updating of the rules’ prescribed information and verifications as needed, based on the CFI’s risk-based procedures for conducting ongoing customer due diligence. The order emphasizes that it is not modifying the existing rule requirement that a CFI “establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program” and that those programs “must still include appropriate procedures to, on a risk basis, maintain and update customer information, including beneficial ownership information, for ongoing due diligence of legal entity customers.” Accordingly, CFIs must still make judgments about, for example, whether their procedures should call for obtaining and verifying customer beneficial owner information more frequently or more extensively than the minimums mandated by the applicable rules. Therefore, although the order maintains CFIs’ flexibility in designing principles-based procedures, some risk remains of future second-guessing by a regulator.

In circumstance iii above (i.e., when a CFI’s procedures require previously obtained beneficial owner information and verifications to be updated with respect to an existing customer, but the CFI is unaware of facts reasonably calling into question such information’s continuing accuracy), the order provides some additional relief. In such cases, the order permits the CFI to continue to rely on the beneficial ownership information and verifications previously obtained, provided that the customer certifies or confirms to the CFI that such information is up to date and accurate. The CFI, of course, must maintain a record of such certification or confirmation.

Parting Thoughts

The relief granted by the order expands upon various more limited relief that FinCEN, by order or interpretation, had in some circumstances previously granted from the CDD rule requirements to obtain and verify customer beneficial owner information when a CFI opens a new account for an existing legal entity customer.

Nevertheless, as discussed under ii and iii above, a CFI may still need to make possibly sensitive judgment calls about when and how to update and verify information about beneficial owners of its legal entity customers. Accordingly, the extent to which, and how, the order’s expanded relief can or should be relied upon may vary considerably based on the particular business characteristics of the CFI and the terms of its overall risk-based procedures for conducting ongoing customer due diligence.