In March of 2024, S&P Global Market Intelligence ("Market Intelligence") hosted a webinar 'Are you Ready to Comply with the Corporate Transparency Act?' focusing on the CTA, specifically legal entity management and Beneficial Ownership Information (BOI) reporting to the Financial Crimes Enforcement Network (FinCEN). The discussion covered the details of the CTA, its impact on businesses, industry insights, and potential solutions to tackle the challenges posed by the Act.

Key Takeaways

1. The importance of proactive compliance with the CTA, and the role of technology

The webinar highlighted the pressing need for firms to commence their efforts to comply with the CTA and its FinCEN BOI reporting rules. Adam Goldberg, Market Intelligence regulatory subject matter expert, emphasized that the sooner a firm embarks on this process the better, given the array of complexities involved.

"If you have not started yet, I would suggest that you start as soon as possible...FinCEN reporting may require outreach and data collection," Adam advised. He stressed the importance of establishing a process for tracking events that require filing of a BOI Report and those that trigger an amendment to a BOI Report.

The webinar also underscored the role of technology in streamlining compliance with the CTA and the benefits of a centralized system for managing population, data, and stakeholders. It discussed the role of a technology solution like CLM Pro from Market Intelligence that provides transparency and control over entity formation and amendment processes with end-to-end client lifecycle management that creates flexible, scalable, and configurable workflows driven by golden-source data.

2. The CTA's reporting requirements and exemptions

The webinar provided an in-depth exploration of the CTA's reporting requirements and exemptions. The discussion emphasized that, while many firms are exempt from the Act, other entities within their structure could be in its scope, such as Special Purpose Vehicles (SPVs).

"You need to do all these different analyses for every one of your entities in your entity structure and really go into them and see if they qualify for an exemption," Adam said. He also pointed out that exemptions do apply to certain entities, such as public companies, regulated entities, and those covered by an operating exemption.

However, just because a parent entity is exempt, that does not automatically mean its subsidiaries are also exempt. These subsidiaries need to be evaluated separately to determine if they qualify for an exemption or not.

3. Future access to BOI database

The webinar discussed future access to the BOI database under the CTA. Initially, the federal government will be the first to access the database, followed by state and local governments and law enforcement entities. Eventually, private entities may gain access to the database for specific regulatory compliance purposes.

"To query the database, you will need a legitimate law enforcement reason…If you are trying to comply with sanctions rules or prevent evasion, you likely will be able to query the database on a particular entity to find its beneficial owners or get some information you may need [to comply with the Bank Secrecy Act (BSA) obligations]," Adam explained. He also cautioned that firms must have strict data access controls due to the sensitive nature of the information in the database.

4. Tools for streamlining compliance

Michelle Ruggiero, Director of Regulatory and Compliance Solutions at Market Intelligence, highlighted the use of tools like CLM Pro to automate and streamline compliance with the CTA. Michelle explained that the tool offers a fully configurable rules engine with the appropriate levels of conditionality, enabling firms to build based on the CTA's reporting requirements.

"Everything within the CLM Pro platform is captured within our audit and the real-time history that you can gather at your fingertips at any point in time," she said. She also noted that the tool can directly connect to any regulatory reporting platform, helping to centralize and simplify the reporting process.

5. Leveraging technology in meeting CTA requirements

Technology solutions, such as CLM Pro, can help centralize the process, ensure data accuracy, and maintain an audit trail of decision-making, essential for any future regulatory examination.

"Centralizing the data and creating a repeatable process through technology are key components to ensure continuous compliance with the regulation," Michelle pointed out. She also noted that the platform is fully API-enabled, enabling automation of data capture from internal systems directly to the reporting agency, which reduces manual efforts.

In summary

• The CTA aims to ban anonymous shell corporations in the U.S. and requires BOI reporting to the FinCEN.
• Reporting timelines for the Act are fast approaching, as the CTA became effective on January 1, 2024. Many firms are struggling with transparency into their legal entity structure, especially regarding legal entity formation and amendments.
• Firms should start reviewing their existing entities as soon as possible to meet the December 31, 2024 deadline for reporting.
• Technology can play a vital role in streamlining compliance processes, ensuring data accuracy and timely reporting.
• Firms need to establish a process for reporting of changes, especially for changes in personal information of key controllers.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.