A Look at the CTA's Subsidiary Exemption as Applied to CMBS Special Purpose Entities

The Corporate Transparency Act (CTA) requires certain domestic and foreign entities, called "reporting companies," to file a beneficial ownership information (BOI) report – which provides information about their owners, management and individuals who assisted in the creation of the entities – with the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). As Securities Reporting Issuers, however, trusts comprising commercial mortgage backed securities (CMBS) loans are exempt from CTA reporting requirements. This is among 23 exemptions to the CTA's definition of "reporting company," which are specified in the final rule implementing the reporting requirements and further described in FinCEN's Small Entity Compliance Guide.

A Securities Reporting Issuer is defined as an entity that is:

• an issuer of a class of securities registered under Section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or
• required to file supplementary and periodic information under Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 780o(d))

Because all CMBS loans are pooled together to form trusts (or real estate mortgage investment conduits (REMICs) that are required to file annual reports on Form 10-K with the U.S. Securities and Exchange Commission pursuant to Section 15(d) of the Securities Exchange Act of 1934, such CMBS trusts are exempt from CTA reporting requirements as Securities Reporting Issuers.

CMBS Special Purpose Entities, as Wholly Owned Subsidiaries of CMBS Trusts, Are Likewise Exempt from CTA Reporting Requirements

Subsidiaries of certain exempt entities, including Securities Reporting Issuers, are also exempt from CTA reporting requirements. A subsidiary is defined as any entity "whose ownership interests are controlled or wholly owned, directly or indirectly" by one of the enumerated exempt entities (C.F.R. § 1010.380(c)(2)(xxii)). To qualify for the subsidiary exemption, a "subsidiary's ownership interests must be fully, 100 percent owned or controlled by" certain exempt entities (FinCEN FAQs – Question L6).

Special Purpose Entities (SPEs) created to, among other things, limit certain risks associated with the resolution of a specially serviced CMBS loan held by a CMBS trust (or REMIC) are often, if not always, wholly owned by the CMBS trust. In such circumstances, the subsidiary exemption will apply to those SPEs that are wholly owned by a CMBS trust (or REMIC) (i.e., a Securities Reporting Issuer) under the CTA.

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