New Beneficial Ownership Reporting Requirements to Cost U.S. Financial Institutions $200 Million Annually

New beneficial ownership reporting requirements are projected to cost U.S. financial institutions around $200 million per year once fully operational, according to FinCEN, the anti-money laundering unit of the U.S. Department of the Treasury. The initial year will see significantly higher costs, estimated at approximately $686 million.

The elevated first-year costs are due to the initial submission of beneficial ownership information by most companies, which will only need to be updated if ownership details change, thereby reducing the cost burden in subsequent years.

Under the new Corporate Transparency Act (CTA), companies registered to do business in the U.S. before the start of 2024 are required to file beneficial ownership information with the Department of the Treasury by January 1, 2025. FinCEN stated that this information is essential for law enforcement to identify the true owners of businesses or assets, aiding investigations into financial crimes such as money laundering.

Despite the intended benefits, there has been resistance from many small firms, which argue that the new requirements will create additional administrative work and expose them to fines for incorrect filings. In May, the National Federation of Independent Businesses (NFIB) filed a lawsuit challenging the CTA.

FinCEN has engaged in several rounds of public consultation regarding the rule changes, with a 60-day submission period concluding at the start of April. The organization has now issued a 30-day notice period seeking further comments on the beneficial ownership requirements.

This notice includes cost estimates, though they are high-level and do not provide a breakdown of costs per company. Approximately 15,700 financial institutions are expected to fall under the reporting requirement rules. The cost to companies will primarily stem from the time needed to file their information.

FinCEN estimates that the total hourly burden for these companies will amount to a combined 6.5 million hours in the first year, decreasing to 1.9 million hours in subsequent years. Much of the 1.9 million hours in later years is expected to involve newly registering companies rather than those updating existing information.

The burden will likely be greater for large companies or financial institutions with complex ownership structures. FinCEN estimates the average time for reporting beneficial ownership information for companies with simple structures to be around 90 minutes per response, whereas filings for entities with complex structures could take nearly 11 hours.

By fLEXI tEAM