5/09/2006 Agency Lending Disclosure Initiative Does Not Make Underlying Owners Into Customers
In guidance posted by FinCEN, the question considered was whether securities lending arrangements between agent lending institutions and borrowing broker-dealers make the underlying owners of the securities lent into customers of the borrowers for Customer Identification Program purposes. FinCEN has said no, the underlying owners do not become customers of the borrowing broker-dealers for CIP purposes. Previously, borrowers in such arrangements would generally not know the names of the underlying owners, but under the Agency Lending Disclosure Initiative, lending agents are to provide broker-dealers with information regarding the identities of the agent lender’s customers whose securities have been loaned. Since this information is provided to monitor credit exposure and calculate capital requirements, the question was raised by agencies involved in the Initiative as to whether the borrower has also obtained a new customer for purposes of the CIP requirements. A blanket exemption was then sought from FinCEN. Under 31 CFR 103.122, Customer Identification Programs for Broker-Dealers, a “customer” is a person that opens a new account. FinCEN, however, analogized the arrangements to an omnibus account established by an intermediary, where the broker-dealer is not required to look through the intermediary to the underlying beneficial owners if the intermediary is identified as the accountholder. The guidance will be discussed in a forthcoming issue of the Monitor and has been incorporated into an updated version of the broker-dealer compliance checklist that will be posted soon.
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