FDIC Law, Regulations, Related Acts
8000 - Miscellaneous Statutes and Regulations
PART 1024RULES FOR MUTUAL FUNDS
§ 1024.100 Definitions.
Refer to Sec. 1010.100 of this Chapter for general definitions not noted herein. To the extent there is a differing definition in Sec. 1010.100 of this Chapter, the definition in this Section is what applies to Part 1024. Unless otherwise indicated, for purposes of this Part:
(a) Account. For purposes of Sec. 1024.220:
(1) Account means any contractual or other business relationship between a person and a mutual fund established to effect transactions in securities issued by the mutual fund, including the purchase or sale of securities.
(2) Account does not include:
(i) An account that a mutual fund acquires through any acquisition, merger, purchase of assets, or assumption of liabilities; or
(ii) An account opened for the purpose of participating in an employee benefit plan established under the Employee Retirement Income Security Act of 1974.
(b) Commission means the United States Securities and Exchange Commission.
(c) Customer. For purposes of Sec. 1024.220:
(1) Customer means:
(i) A person that opens a new account; and
(ii) An individual who opens a new account for:
(A) An individual who lacks legal capacity, such as a minor; or
(B) An entity that is not a legal person, such as a civic club.
(2) Customer does not include:
(i) A financial institution regulated by a Federal functional regulator or a bank regulated by a State bank regulator;
(ii) A person described in Sec. 1020.315(b)(2) through (4) of this Chapter; or
(iii) A person that has an existing account with the mutual fund, provided that the mutual fund has a reasonable belief that it knows the true identity of the person.
(d) Financial institution is defined at 31 U.S.C. 5312(a)(2) and (c)(1).
[Codified to 31 C.F.R. § 1024.100]
§ 1024.200 General.
Mutual funds are subject to the program requirements set forth and cross referenced in this subpart. Mutual funds should also refer to Subpart B of Part 1010 of this Chapter for program requirements contained in that subpart which apply to mutual funds.
[Codified to 31 C.F.R. § 1024.200]
§ 1024.210 Anti-money laundering program requirements for mutual funds.
(a) Effective July 24, 2002, each mutual fund shall develop and implement a written anti-money laundering program reasonably designed to prevent the mutual fund from being used for money laundering or the financing of terrorist activities and to achieve and monitor compliance with the applicable requirements of the Bank Secrecy Act (31 U.S.C. 5311, et seq.), and the implementing regulations promulgated thereunder by the Department of the Treasury. Each mutual fund's anti-money laundering program must be approved in writing by its board of directors or trustees. A mutual fund shall make its anti-money laundering program available for inspection by the U.S. Securities and Exchange Commission.
(b) The anti-money laundering program shall at a minimum:
(1) Establish and implement policies, procedures, and internal controls reasonably designed to prevent the mutual fund from being used for money laundering or the financing of terrorist activities and to achieve compliance with the applicable provisions of the Bank Secrecy Act and implementing regulations thereunder;
(2) Provide for independent testing for compliance to be conducted by the mutual fund's personnel or by a qualified outside party;
(3) Designate a person or persons responsible for implementing and monitoring the operations and internal controls of the program;
(4) Implement appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to:
(i) Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and
(ii) Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. For purposes of this paragraph (b)(4)(ii), customer information shall include information regarding the beneficial owners of legal entity customers (as defined in § 1010.230 of this chapter).
[Codified to 31 C.F.R. § 1024.210]
§ 1024.220 Customer identification programs for mutual funds.
(a) Customer identification program: minimum requirements--(1) In general. A mutual fund must implement a written Customer Identification Program (``CIP'') appropriate for its size and type of business that, at a minimum, includes each of the requirements of paragraphs (a)(1) through (5) of this section. The CIP must be a part of the mutual fund's anti-money laundering program required under the regulations implementing 31 U.S.C. 5318(h).
(2) Identity verification procedures. The CIP must include risk- based procedures for verifying the identity of each customer to the extent reasonable and practicable. The procedures must enable the mutual fund to form a reasonable belief that it knows the true identity of each customer. The procedures must be based on the mutual fund's assessment of the relevant risks, including those presented by the manner in which accounts are opened, fund shares are distributed, and purchases, sales and exchanges are effected, the various types of accounts maintained by the mutual fund, the various types of identifying information available, and the mutual fund's customer base. At a minimum, these procedures must contain the elements described in this paragraph (a)(2).
(i) Customer information required--(A) In general. The CIP must contain procedures for opening an account that specify the identifying information that will be obtained with respect to each customer. Except as permitted by paragraph (a)(2)(i)(B) of this section, a mutual fund must obtain, at a minimum, the following information prior to opening an account:
(2) Date of birth, for an individual;
(3) Address, which shall be:
(i) For an individual, a residential or business street address;
(ii) For an individual who does not have a residential or business street address, an Army Post Office (APO) or Fleet Post Office (FPO) box number, or the residential or business street address of next of kin or of another contact individual; or
(iii) For a person other than an individual (such as a corporation, partnership, or trust), a principal place of business, local office or other physical location; and
(4) Identification number, which shall be:
(i) For a U.S. person, a taxpayer identification number; or
(ii) For a non-U.S. person, one or more of the following: a taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.
Note to Paragraph (a)(2)(i)(A)(4)(ii):
When opening an account for a foreign business or enterprise that does not have an identification number, the mutual fund must request alternative government-issued documentation certifying the existence of the business or enterprise.
(B) Exception for persons applying for a taxpayer identification number. Instead of obtaining a taxpayer identification number from a customer prior to opening an account, the CIP may include procedures for opening an account for a person that has applied for, but has not received, a taxpayer identification number. In this case, the CIP must include procedures to confirm that the application was filed before the person opens the account and to obtain the taxpayer identification number within a reasonable period of time after the account is opened.
(ii) Customer verification. The CIP must contain procedures for verifying the identity of the customer, using the information obtained in accordance with paragraph (a)(2)(i) of this section, within a reasonable time after the account is opened. The procedures must describe when the mutual fund will use documents, non-documentary methods, or a combination of both methods as described in this paragraph (a)(2)(ii).
(A) Verification through documents. For a mutual fund relying on documents, the CIP must contain procedures that set forth the documents that the mutual fund will use. These documents may include:
(1) For an individual, unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver's license or passport; and
(2) For a person other than an individual (such as a corporation, partnership, or trust), documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement, or trust instrument.
(B) Verification through non-documentary methods. For a mutual fund relying on non-documentary methods, the CIP must contain procedures that describe the non-documentary methods the mutual fund will use.
(1) These methods may include contacting a customer; independently verifying the customer's identity through the comparison of information provided by the customer with information obtained from a consumer reporting agency, public database, or other source; checking references with other financial institutions; and obtaining a financial statement.
(2) The mutual fund's non-documentary procedures must address situations where an individual is unable to present an unexpired government-issued identification document that bears a photograph or similar safeguard; the mutual fund is not familiar with the documents presented; the account is opened without obtaining documents; the customer opens the account without appearing in person; and where the mutual fund is otherwise presented with circumstances that increase the risk that the mutual fund will be unable to verify the true identity of a customer through documents.
(C) Additional verification for certain customers. The CIP must address situations where, based on the mutual fund's risk assessment of a new account opened by a customer that is not an individual, the mutual fund will obtain information about individuals with authority or control over such account, including persons authorized to effect transactions in the shareholder of record's account, in order to verify the customer's identity. This verification method applies only when the mutual fund cannot verify the customer's true identity using the verification methods described in paragraphs (a)(2)(ii)(A) and (B) of this section.
(iii) Lack of verification. The CIP must include procedures for responding to circumstances in which the mutual fund cannot form a reasonable belief that it knows the true identity of a customer. These procedures should describe:
(A) When the mutual fund should not open an account;
(B) The terms under which a customer may use an account while the mutual fund attempts to verify the customer's identity;
(C) When the mutual fund should file a Suspicious Activity Report in accordance with applicable law and regulation; and
(3) Recordkeeping. The CIP must include procedures for making and maintaining a record of all information obtained under paragraph (a) of this section.
(i) Required records. At a minimum, the record must include:
(A) All identifying information about a customer obtained under paragraph (a)(2)(i) of this section;
(B) A description of any document that was relied on under paragraph (a)(2)(ii)(A) of this section noting the type of document, any identification number contained in the document, the place of issuance, and if any, the date of issuance and expiration date;
(C) A description of the methods and the results of any measures undertaken to verify the identity of the customer under paragraph (a)(2)(ii)(B) or (C) of this section; and
(D) A description of the resolution of any substantive discrepancy discovered when verifying the identifying information obtained.
(ii) Retention of records. The mutual fund must retain the information in paragraph (a)(3)(i)(A) of this section for five years after the date the account is closed. The mutual fund must retain the information in paragraphs (a)(3)(i)(B), (C), and (D) of this section for five years after the record is made.
(4) Comparison with government lists. The CIP must include procedures for determining whether the customer appears on any list of known or suspected terrorists or terrorist organizations issued by any Federal government agency and designated as such by the Department of the Treasury in consultation with the Federal functional regulators. The procedures must require the mutual fund to make such a determination within a reasonable period of time after the account is opened, or earlier, if required by another Federal law or regulation or Federal directive issued in connection with the applicable list. The procedures must also require the mutual fund to follow all Federal directives issued in connection with such lists.
(5)(i) Customer notice. The CIP must include procedures for providing mutual fund customers with adequate notice that the mutual fund is requesting information to verify their identities.
(ii) Adequate notice. Notice is adequate if the mutual fund generally describes the identification requirements of this section and provides the notice in a manner reasonably designed to ensure that a customer is able to view the notice, or is otherwise given notice, before opening an account. For example, depending on the manner in which the account is opened, a mutual fund may post a notice on its Web site, include the notice on its account applications, or use any other form of written or oral notice.
(iii) Sample notice. If appropriate, a mutual fund may use the following sample language to provide notice to its customers:
Important Information About Procedures for Opening a New Account
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.
(6) Reliance on other financial institutions. The CIP may include procedures specifying when a mutual fund will rely on the performance by another financial institution (including an affiliate) of any procedures of the mutual fund's CIP, with respect to any customer of the mutual fund that is opening, or has opened, an account or has established a similar formal business relationship with the other financial institution to provide or engage in services, dealings, or other financial transactions, provided that:
(i) Such reliance is reasonable under the circumstances;
(ii) The other financial institution is subject to a rule implementing 31 U.S.C. 5318(h) and is regulated by a Federal functional regulator; and
(iii) The other financial institution enters into a contract requiring it to certify annually to the mutual fund that it has implemented its anti-money laundering program, and that it (or its agent) will perform the specific requirements of the mutual fund's CIP.
(b) Exemptions. The Commission, with the concurrence of the Secretary, may, by order or regulation, exempt any mutual fund or type of account from the requirements of this section. The Commission and the Secretary shall consider whether the exemption is consistent with the purposes of the Bank Secrecy Act and is in the public interest, and may consider other appropriate factors.
(c) Other requirements unaffected. Nothing in this section relieves a mutual fund of its obligation to comply with any other provision in this chapter, including provisions concerning information that must be obtained, verified, or maintained in connection with any account or transaction.
[Codified to 31 C.F.R. § 1024.220]
Subpart CReports Required To Be Made By Mutual Funds
§ 1024.300 General.
Mutual funds are subject to the reporting requirements set forth and cross referenced in this subpart. Mutual funds should also refer to Subpart C of Part 1010 of this Chapter for reporting requirements contained in that subpart which apply to mutual funds.
§ 1024.310 Reports of transactions in currency.
The reports of transactions in currency requirements for mutual funds are located in subpart C of Part 1010 of this Chapter and this subpart.
§ 1024.311 Filing obligations.
Refer to Sec. 1010.311 of this Chapter for reports of transactions in currency filing obligations for mutual funds.
§ 1024.312 Identification required.
Refer to Sec. 1010.312 of this Chapter for identification requirements for reports of transactions in currency filed by mutual funds.
§ 1024.313 Aggregation.
Refer to Sec. 1010.313 of this Chapter for reports of transactions in currency aggregation requirements for mutual funds.
§ 1024.314 Structured transactions.
Refer to Sec. 1010.314 of this Chapter for rules regarding structured transactions for mutual funds.
§ 1024.315 Exemptions.
Refer to Sec. 1010.315 of this Chapter for exemptions from the obligation to file reports of transactions in currency for mutual funds.
§ 1024.320 Reports by mutual funds of suspicious transactions.
(a) General. (1) Every investment company (as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3) (``Investment Company Act'') that is an open-end company (as defined in section 5 of the Investment Company Act (15 U.S.C. 80a-5)) and that is registered, or is required to register, with the Securities and Exchange Commission pursuant to that Act (for purposes of this section, a ``mutual fund''), shall file with the Financial Crimes Enforcement Network, to the extent and in the manner required by this section, a report of any suspicious transaction relevant to a possible violation of law or regulation. A mutual fund may also file with the Financial Crimes Enforcement Network a report of any suspicious transaction that it believes is relevant to the possible violation of any law or regulation, but whose reporting is not required by this section. Filing a report of a suspicious transaction does not relieve a mutual fund from the responsibility of complying with any other reporting requirements imposed by the Securities and Exchange Commission.
(2) A transaction requires reporting under this section if it is conducted or attempted by, at, or through a mutual fund, it involves or aggregates funds or other assets of at least $5,000, and the mutual fund knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part):
(i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation;
(ii) Is designed, whether through structuring or other means, to evade any requirements of this chapter or any other regulations promulgated under the Bank Secrecy Act;
(iii) Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the mutual fund knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or
(iv) Involves use of the mutual fund to facilitate criminal activity.
(3) More than one mutual fund may have an obligation to report the same transaction under this section, and other financial institutions may have separate obligations to report suspicious activity with respect to the same transaction pursuant to other provisions of this chapter. In those instances, no more than one report is required to be filed by the mutual fund(s) and other financial institution(s) involved in the transaction, provided that the report filed contains all relevant facts, including the name of each financial institution and the words ``joint filing'' in the narrative section, and each institution maintains a copy of the report filed, along with any supporting documentation.
(b) Filing and notification procedures--(1) What to file. A suspicious transaction shall be reported by completing a Suspicious Activity Report by Securities and Futures Industries ("SAR-SF"), and collecting and maintaining supporting documentation as required by paragraph (c) of this section.
(2) Where to file. Form SAR-SF shall be filed with the Financial Crimes Enforcement Network in accordance with the instructions to the Form SAR-SF.
(3) When to file. A Form SAR-SF shall be filed no later than 30 calendar days after the date of the initial detection by the reporting mutual fund of facts that may constitute a basis for filing a Form SAR- SF under this section. If no suspect is identified on the date of such initial detection, a mutual fund may delay filing a Form SAR-SF for an additional 30 calendar days to identify a suspect, but in no case shall reporting be delayed more than 60 calendar days after the date of such initial detection.
(4) Mandatory notification to law enforcement. In situations involving violations that require immediate attention, such as suspected terrorist financing or ongoing money laundering schemes, a mutual fund shall immediately notify by telephone an appropriate law enforcement authority in addition to filing timely a Form SAR-SF.
(5) Voluntary notification to the Financial Crimes Enforcement Network or the Securities and Exchange Commission. Mutual funds wishing voluntarily to report suspicious transactions that may relate to terrorist activity may call the Financial Crimes Enforcement Network's Financial Institutions Hotline at 1-866-556-3974 in addition to filing timely a Form SAR-SF if required by this section. The mutual fund may also, but is not required to, contact the Securities and Exchange Commission to report in such situations.
(c) Retention of records. A mutual fund shall maintain a copy of any Form SAR-SF filed by the fund or on its behalf (including joint reports), and the original (or business record equivalent) of any supporting documentation concerning any Form SAR-SF that it files (or is filed on its behalf), for a period of five years from the date of filing the Form SAR-SF. Supporting documentation shall be identified as such and maintained by the mutual fund, and shall be deemed to have been filed with the Form SAR-SF. The mutual fund shall make all supporting documentation available to the Financial Crimes Enforcement Network, any other appropriate law enforcement agencies or Federal or state securities regulators, and for purposes of an examination of a broker-dealer pursuant to Sec. 1023.320(g) of this chapter regarding a joint report, to a self-regulatory organization (as defined in section 3(a)(26) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(26)) registered with the Securities and Exchange Commission, upon request.
(d) Confidentiality of reports. No mutual fund, and no director, officer, employee, or agent of any mutual fund, who reports a suspicious transaction under this chapter (whether such a report is required by this section or made voluntarily), may notify any person involved in the transaction that the transaction has been reported, except to the extent permitted by paragraph (a)(3) of this section. Any person subpoenaed or otherwise required to disclose a Form SAR-SF or the information contained in a Form SAR-SF, including a Form SAR-SF filed jointly with another financial institution involved in the same transaction (except where such disclosure is requested by the Financial Crimes Enforcement Network, the Securities and Exchange Commission, another appropriate law enforcement or regulatory agency, or, in the case of a joint report involving a broker-dealer, a self-regulatory organization registered with the Securities and Exchange Commission conducting an examination of such broker-dealer pursuant to Sec. 1023.320(g) of this chapter), shall decline to produce Form SAR-SF or to provide any information that would disclose that a Form SAR-SF has been prepared or filed, citing this paragraph (d) and 31 U.S.C. 5318(g)(2), and shall notify the Financial Crimes Enforcement Network of any such request and its response thereto.
(e) Limitation of liability. A mutual fund, and any director, officer, employee, or agent of such mutual fund, that makes a report of any possible violation of law or regulation pursuant to this section, including a joint report (whether such report is required by this section or made voluntarily) shall be protected from liability for any disclosure contained in, or for failure to disclose the fact of, such report, or both, to the extent provided in 31 U.S.C. 5318(g)(3).
(f) Examinations and enforcement. Compliance with this section shall be examined by the Department of the Treasury, through the Financial Crimes Enforcement Network or its delegees, under the terms of the Bank Secrecy Act. Failure to satisfy the requirements of this section may constitute a violation of the reporting rules of the Bank Secrecy Act and of this chapter.
(g) Applicability date. This section applies to transactions occurring after October 31, 2006.
[Codified to 31 C.F.R. § 1024.320]
Subpart DRecords Required To Be Maintained By Mutual Funds
§ 1024.400 General.
Mutual funds are subject to the recordkeeping requirements set forth and cross referenced in this subpart. Mutual funds should also refer to Subpart D of Part 1010 of this Chapter for recordkeeping requirements contained in that subpart which apply to mutual funds.
§ 1024.410 Recordkeeping.
Refer to Sec. 1010.410 of this Chapter.
[Codified to 31 C.F.R. § 1024.410]
Subpart ESpecial Information Sharing Procedures To Deter Money Laundering and Terrorist Activity
§ 1024.500 General.
Mutual funds are subject to the special information sharing procedures to deter money laundering and terrorist activity requirements set forth and cross referenced in this subpart. Mutual funds should also refer to Subpart E of Part 1010 of this Chapter for special information sharing procedures to deter money laundering and terrorist activity contained in that subpart which apply to mutual funds.
§ 1024.520 Special information sharing procedures to deter money laundering and terrorist activity for mutual funds.
(a) Refer to Sec. 1010.520 of this Chapter.
§ 1024.540 Voluntary information sharing among financial institutions.
(a) Refer to Sec. 1010.540 of this Chapter.
[Codified to 31 C.F.R. § 1024.540]
Subpart FSpecial Standards of Diligence; Prohibitions; and Special Measures for Mutual Funds
§ 1024.600 General.
Mutual funds are subject to the special standards of diligence; prohibitions; and special measures requirements set forth and cross referenced in this subpart. Mutual funds should also refer to Subpart F of Part 1010 of this Chapter for special standards of diligence; prohibitions; and special measures contained in that subpart which apply to mutual funds.
§ 1024.610 Due diligence programs for correspondent accounts for foreign financial institutions.
(a) Refer to Sec. 1010.610 of this Chapter.
§ 1024.620 Due diligence programs for private banking accounts.
(a) Refer to Sec. 1010.620 of this Chapter.
§ 1024.630 Prohibition on correspondent accounts for foreign shell banks; records concerning owners of foreign banks and agents for service of legal process.
(a) Refer to Sec. 1010.630 of this Chapter.
§ 1024.670 [Reserved]