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2025 KYB Regulatory Updates

Last Updated: 2025-12-28 Status: Complete

This page covers the most significant 2025 regulatory changes affecting KYB processes for Payment Facilitators.

FinCEN CTA Exemption (March 2025)​

Major Change​

On March 26, 2025, FinCEN issued guidance removing BOI (Beneficial Ownership Information) reporting requirements for all U.S. domestic companies under the Corporate Transparency Act (CTA).

Background​

  • Corporate Transparency Act (CTA): Enacted 2021, required companies to report beneficial owners to FinCEN
  • Original Rule: All corporations, LLCs, and similar entities must file BOI reports identifying 25%+ beneficial owners
  • Exemptions: Large operating companies, regulated entities (banks, brokers), certain trusts

What Changed (March 2025)​

  • U.S. Domestic Entities: No longer required to file BOI reports with FinCEN
  • Foreign Entities: Still must report BOI if registered to do business in the U.S.
  • 25% Threshold: Beneficial ownership threshold remains 25% for other purposes (FinCEN CDD Rule, sponsor bank requirements)

Impact on PayFacs​

AreaBefore (2021-2025)After (March 2025)
FinCEN BOI FilingRequired for all entitiesNot required for U.S. domestic entities
PayFac KYB ProcessNo change (never relied on FinCEN filings)No change
UBO IdentificationRequired (25%+ owners)Still required (FinCEN CDD Rule)
Sponsor Bank RequirementsUBO verification mandatoryStill mandatory

Key Takeaways​

  • FinCEN BOI database is no longer updated for U.S. entities (as of March 26, 2025)
  • PayFacs still must identify and verify UBOs under FinCEN CDD Rule (separate regulation)
  • CTA exemption does NOT eliminate KYB requirements for payment processors
CTA Exemption Does NOT Eliminate UBO Requirements

While the March 2025 CTA update removed FinCEN reporting, PayFacs are still required to collect and verify beneficial owner information under the FinCEN Customer Due Diligence (CDD) Rule, which remains in full effect. This is separate from the CTA.

Foreign Entity Requirements (Still in Effect)​

  • Foreign companies registered in the U.S. still must file BOI reports
  • 25%+ beneficial owners must be identified
  • Submitted to FinCEN BOI database

FinCEN CDD Rule (Still Active)​

The Customer Due Diligence (CDD) Rule remains the primary regulation requiring KYB and UBO verification for financial institutions, including PayFacs and sponsor banks.

Four Core Components​

1. Customer Identification Program (CIP)​

  • Verify identity of business entity
  • Collect: Legal name, address, EIN, entity type
  • Validate through Secretary of State, IRS records

2. Beneficial Ownership Identification​

  • Who: All individuals with 25%+ ownership (equity interest)
  • Plus: One individual with significant control (senior officer if no 25%+ owner)
  • Information Required:
    • Name
    • Date of birth
    • Address (residential or business)
    • Social Security Number (or passport for foreign individuals)

3. Understanding Nature and Purpose of Customer Relationship​

  • What is the business purpose?
  • What products/services does the merchant sell?
  • Expected transaction volume and patterns
  • Geographic scope (local, national, international)

4. Ongoing Monitoring​

  • Monitor transactions for suspicious activity
  • Update customer information periodically
  • File SARs (Suspicious Activity Reports) when required

CDD Timeline​

  • Account opening: Must collect beneficial ownership before opening account (onboarding)
  • Existing accounts: No retroactive requirement (grandfathered)
  • Annual review: Update UBO information if changes suspected

Exemptions​

  • Financial institutions already regulated (banks, broker-dealers)
  • Publicly traded companies (SEC reporting requirements)
  • Government entities
CDD vs CTA Distinction
  • FinCEN CDD Rule: Financial institutions must collect UBO info (still required)
  • FinCEN CTA (now exempt for U.S. entities): Companies must file UBO info with FinCEN (no longer required as of March 2025)

PayFacs operate under CDD Rule, so KYB/UBO requirements have not changed despite CTA exemption.

Summary: What PayFacs Need to Know​

RegulationStatus (Dec 2025)PayFac Requirement
FinCEN CTAU.S. entities exemptNo direct impact on PayFac KYB
FinCEN CDD RuleActive and enforcedMust collect 25%+ UBO info
Sponsor Bank RequirementsActive and expandingMust verify all UBOs
OFAC ScreeningStricter (10-year retention)Screen all parties, retain records 10 years

References​

Government Sources:

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