So the question that people always ask is, what is a company UBO? This describes and pertains to, any individual benefitting from, or who receives a positive impact from a company, is deemed an Ultimate Beneficial Owner (UBO). This is even if they are not formally named as the owner of the business.
A UBO is defined as the beneficiary of at least 25% of a company’s capital gains, company shares or voting rights, giving them significant control and a related interest in the business. Such control would include the right to remove most of the directors on the Board.
What is a company UBO (Ultimate Beneficial Owner)?
An Ultimate Beneficial Owner is a person, or entity, that is the ultimate beneficiary when an institution initiates a transaction. It also includes those legal persons who exercise ultimate effective control over a legal person or arrangement.
An Ultimate Beneficial Owner of a legal entity or a natural person that could be:
- Anyone that has direct/indirect control
- Power of Attorney
- Guardian for minors
Why is company UBO monitoring so important?
Serious crime is on the increase, as confirmed by CreditSafe; revealing that 37% of the businesses surveyed had been a victim of fraud within the previous 12 months. These crimes included money laundering, terrorist financing, transacting with Politically Exposed Persons (PEPs) and sanctioned individuals. Obviously not all individuals that have a controlling interest are criminals. However, they may be an individual that has a sanction against them or is using the organisation to launder money.
Identifying the ultimate beneficial owner is extremely important in detailed risk assessment practices before a company enters into a new relationship/transaction with another. Screening for and monitoring Ultimate Beneficial Owners of an entity allows businesses to identify the bad actors and prevent them from having a negative impact on their business. Carrying out UBO monitoring checks thoroughly, allows businesses to not only comply with regulation, but also reduce the exposure to hefty fines and protect against reputational damage.
The process for on-boarding customers has certainly become more stringent with the 4th and 5th AML directives, together with the Financial Action Task Force (FATF) recommendations for better Customer Due Diligence (CDD). But businesses should not stop at KYC or KYB on-boarding, they must ensure continuous UBO monitoring for ongoing CDD.
What are the specific regulations or compliance standard that companies need to adhere to when determining ultimate beneficial ownership?
Compliance with regulations such as the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (or MLR 2017) is crucial for UK regulated firms.
Under these regulations, firms must implement a risk-based approach to UBO identification, tailoring their procedures to the specific characteristic of their business and clients. Compliance teams need to familiarise themselves with the specific obligations outlined in MLR 2017 and any updates or amendments to ensure full compliance.
How does the process of identifying and verifying UBOs vary across different industries or jurisdictions?
The process of identifying and verifying UBOs can vary depending on the industry and jurisdiction. Factors such as the nature of the business, risk exposure, and regulatory requirements directing influence the approach that must be taken by AML compliance teams.
For example, financial institutions may employ more rigorous due diligence procedures compared to non-financial entities, given the higher risk of money laundering and terrorist financing within the banking sector. Similarly, the approach to UBO identification may differ between sectors such as real estate and professional services, each presenting unique challenges and considerations.
It is important that compliance professionals stay updated on sector-specific guidance and best practices to ensure effective UBO identification and verification.
Complex company structures and shell companies
Bad actors are adept at building a web of complex company structures, often involving shell companies to hide their ownership and ill-gotten gains. A shell corporation is an entity without significant assets or active business operations. Whilst they are not all illegal, they are often used to disguise business ownership from law enforcement agencies and regulators.
As organised crime increases so does the number of companies behind these complex structures to hide the Ultimate Beneficial Ownerships.
Can the concept of ultimate beneficial ownership be applied to non-corporate entities, such as trusts and partnerships?
Yes, the concept of UBOs extends beyond traditional corporate entities to include trusts, partnerships, and other legal structures. It is importance to understand the nuances of UBO identificiation and verirication for these entities. Different legal frameworks and structures may require tailored approaches to ascertain beneficial ownership.
International effort to combat UBO
In joining forces, many countries are fighting back. The UK is amongst those countries at the frontline of international efforts to combat financial crime involving fraud. The UK is at the forefront when it comes to tackling money laundering and terrorist financing globally; in 2018, the UK achieved the best rating of any country assessed so far in this round of the FATF evaluations. But we know we must go further and faster in strengthening our national response through the implementation of ownership information registers.
How to find the UBO of a company
Exactly how firms must identify and screen UBOs varies across jurisdiction, however what is consistent is the requirement to verify and monitor UBOs as part of AML compliance and CFT regulation.
As part of your KYB onboarding process, you must gather accurate information on a business, including the registration number, name, address, status and details of directors (and, where required, to carry out ID&V checks on directors).
From here, it is important to determine which individuals have a percentage of shares or controlling interest in the business with whom you wish to transact.
The UK government often uses the term ‘person with significant control’ or PSC in place of beneficial owners. By their definition, a PSC is typically those that hold:
Most PSCs are those who hold:
- more than 25% of shares in the company
- more than 25% of voting rights in the company
- the right to appoint or remove the majority of the board of directors
For each beneficial owner identified, certain details must be recorded including their name, date of birth, nationality, country of residence, the date they became a PSC, the level of their shares and voting rights and more. A full breakdown of what is required is available on the Gov.UK.
All UBOs identified must go through appropriate due diligence checks as part of your KYC/AML processes.
Automated solutions for company UBO verification
Our tools are highly configurable and can be used at each stage of your customer’s journey to ensure that you collect and verify all the information that you need to achieve compliance. Our KYB/KYC and UBO solutions enable you to deliver a seamless client onboarding journey, no matter how complex your requirements, to achieve a great reputation and long-lasting relationships with your customers without exposing your business to lost revenues or non-compliance.
By implementing an effective screening process, you not only avoid hefty fines and reputational damage, but also show the regulators your commitment in the fight against financial crime and by identifying UBOs
UBO solution from NorthRow
Serious and organised crime undermines the legitimacy and authority of the state and its institutions, threatening the safety of both citizens and communities. According to the National risk assessment of money laundering and terrorist financing 2020 report, the estimated cost to the UK economy is £37bn per year.
The scale of the threat is becoming more complex, as criminals adapt to our response and exploit advances in technology to hide themselves in plain sight. So, your business needs a solution that is agile and can deal with the demands of not just today’s bad actors but also those in the future.
NorthRow’s Ultimate Beneficial Owner Identification tool delves into the complex ownership structure of your target organisation and returns a simple table containing the person(s) that you are required to screen. No more unnecessary or complicated corporate webs. Just the information you need to determine the risk and decide whether it is safe to onboard this business client or not.
This can be returned as an add-on to a standard check-in a new tab on the UI or can be returned via our new API. In both cases, the UBO service makes performing additional checks on these individuals a streamlined process by simplifying existing workflows and can easily be combined with RemoteVerify.
NorthRow’s RemoteVerify solution allows you to onboard Ultimate Beneficial Owners and company directors anywhere in the world, at any time. Our market-leading self-service solutions enable real-time identity verification using a progressive web app. The app takes the user through the steps of identity, document and address verification together with liveness checks, streamlining your business onboarding process.
Last updated: Wednesday 28 February 2024