The Financial Crimes Enforcement Network (FinCEN) is a government agency within the United States Department of the Treasury dedicated to preventing and investigating financial crimes. The agency combats money laundering and terrorist financing. Today, it uses its substantial resources to analyze national financial transaction data and provide intelligence to law enforcement, counter-terrorism agencies, and financial regulators.
In 2024, FinCEN announced new rules to combat real estate crime, including wire transfer fraud, thus impacting title company operations. Title companies must now collect and file information about buyers of non-financed residential properties and adhere to stricter compliance and reporting guidelines.
This new regulation requires title companies to integrate additional measures into their routine operations as an integral part of maintaining compliance.
What are the new FinCEN requirements?
As part of an extensive reinforcement of the agency through the Corporate Transparency Act of 2021, FinCEN’s updated regulations aim to collect data on people potentially involved in illicit activities.
The new regulations require title and settlement companies to collect and file information about companies and individuals making non-financed residential property purchases valued at $300,000 or more ($50,000 in Baltimore County and City). Title companies must submit images of the driver’s licenses and passports for individuals acting on behalf of the business entity and any person who owns 25% or more of the entity’s equity interests.
This new regulation works with new beneficial ownership information (BOI) reporting requirements updated by the Corporate Transparency Act. Between BOI reporting and information provided by title companies, federal agents hope to better identify how drug dealers, terrorists, and other criminals use business (or personal) property to funnel money and contraband throughout their organizations.
FinCEN has also flagged several Geographic Targeting Orders (GTO) to provide a special focus on geographical areas where FinCEN believes money launderers are most likely operating. These GTOs cover counties and major U.S. metropolitan areas in California, Colorado, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Nevada, New York, Texas, Washington, Virginia, and the District of Columbia.
Given these lower reporting thresholds and a broader geographic scope, companies nationwide must enhance their due diligence to meet these compliance requirements.
Key impacts on title and settlement companies
FinCEN’s new regulations have a range of impacts on title and settlement companies:
- Expanded reporting obligations: Companies must report BOI and detailed transaction data and expect potentially stricter reporting on the source of funds and parties involved.
- Enhanced due diligence: Companies must emphasize verifying the identities of buyers, sellers, and other entities by using advanced ID verification and Know Your Customer (KYC) protocols. Look for identity verification technology that uses KYC, like Closinglock, because it relies on official documents and data for verification. Knowledge-Based Authentication (KBA) used by some technology platforms may no longer meet new requirements because it relies on personal knowledge-based questions, which bad actors can more easily answer.
- Increased compliance costs: Companies must invest in technology, compliance staff, and legal consultation, then provide ongoing training and audits to maintain regulatory adherence.
- Longer transaction timelines: Due diligence increases transaction steps, potentially slowing processes and affecting client relationships.
- Higher risk of penalties: Companies that are negligent or make mistakes may face fines or legal action for non-compliance.
- Focus on fraud detection: Companies must proactively monitor for suspicious activities and file Suspicious Activity Reports (SARs) to FinCEN.
How title companies can prepare for compliance
As these measures take effect, title and settlement companies will need to adjust their practices in several ways. There will be a need to balance compliance with maintaining a seamless client experience due to the longer transaction timelines and increased security protocols. That may mean additional operational costs to pay for security tools and extra staff to support compliance. Furthermore, regulatory changes are ongoing, requiring companies to continuously adapt and remain vigilant about compliance.
However, title companies can adopt several strategies to prepare for compliance:
- Leverage technology solutions: Using fraud prevention software like Closinglock for ID verification, payment security, and document sharing, as well as automating compliance workflows can increase security and efficiency.
- Educate and train employees: Building a culture of compliance within the organization and training staff to recognize red flags and comply with FinCEN regulations will help you stay ahead of the regulatory curve.
- Collaborate with experts: Partnering with legal and compliance professionals can provide guidance in conducting regular audits to identify process gaps.
- Review and update policies: Establishing clear internal guidelines for due diligence and reporting will support current and future employees with present regulations and prepare them to comply swiftly with future FinCEN updates.
Opportunities amid regulatory challenges
Despite these challenges, the new FinCEN requirements also present opportunities. Real estate fraud is increasingly common, and 71% of consumers expect others to educate them about wire fraud prevention and other real estate scams. By establishing themselves as leaders in security and transparency in real estate transactions, title and settlement companies can position themselves as trusted partners and stand out in a competitive marketplace.
Title companies can gain a competitive advantage by adopting innovative, secure technology solutions and committing to educating all parties involved in a real estate transaction. After all, honesty and integrity hold significant value for many people.
How title companies can lead innovation
FinCEN’s new regulations require title companies to adopt enhanced measures for collecting buyer data and analyzing real estate activity for indicators of illicit behavior, ensuring compliance with updated standards. Title companies have always played a crucial role in combating wire fraud and real estate scams, and taking a leadership role in FinCEN enforcement will help you better position your company as a trusted partner in an increasingly risky market. With a proactive approach to compliance, your company will be primed to adapt to future regulation changes.
Stay ahead of the curve by prioritizing security, efficiency, and trust in real estate transactions. Trust Closinglock to keep your company on the leading edge.
Protecting transactions with Closinglock
Closinglock is trusted by hundreds of title companies and law firms to power and protect real estate transactions from the escalating threat of fraud while improving workflow efficiency. Its wire fraud prevention software includes identity verification, document exchange, and eSigning to keep transactions secure, all in one platform. Closinglock is the only company that offers a Good Funds compliant payment tool that allows buyers to conveniently send their deposit or cash-to-close funds via their desktop or mobile device and is covered up to $2.5 million under the industry’s highest insurance policy. Request a demo today.