The ability to comprehensively identify and verify corporate hierarchies and Ultimate Beneficial Owners (UBOs) has become increasingly important, but also very time-consuming. Most regulated businesses invest considerable resources to uncover the full picture. In this article I am going to discuss how we can simplify the process to reduce both time and complexity, by removing much of the manual process that can leave firms exposed to unknown risks and criminal activity, such as money laundering, bribery and corruption.

What is an Ultimate Beneficial Owner?

An Ultimate Beneficial Owner is an individual who owns or controls more than 25 percent of the shares or voting rights in a legal entity. They hold the right to appoint or remove the majority of the board of directors or have the right to exercise significant influence or control over the company. 

Why is identifying UBOs so important?

Criminals will continue to use complex corporate structures and shell companies to hide their real identities, conceal the source of their funds and what they are using them for. To combat this, regulated firms must carry out exhaustive checks when onboarding customers, to ascertain whether they present a compliance risk, which could, if they did, ultimately lead to a heavy fine or reputational damage. 

The fight against money laundering has increased following stricter regulations (such as 4MLD and MLR2017) were put in place, around financial transparency for EU obliged entities conducting business with commercial clients. Different member states have enabled laws to enforce reporting requirements, which is also a requirement of FinCen in the USA. 

The challenges of identifying UBOs

By their very nature, ownership structures are complex if there is a criminal involved. For instance it could involve different jurisdictions and entity types, with many layers of structures in an attempt to conceal the criminal’s true identity. Other challenges facing the regulated business when tackling the issue of UBOs include:-

• lack of technology to link data across different data silos

• manual document processes that are exposed to human error and poor time efficiencies

• reactive approach to risk and compliance

• disparate and fragmented data 

• inconsistent and fragmented sources of data, across different jurisdictions, to comprehensively understand ownership, with different countries having different levels of transparency and disclosure requirements regarding company registrations (Source)

• delivery of poor customer experience through protracted onboarding and monitoring processes

• difficulty in monitoring and detecting changes in profiles or suspicious patterns

• KYC or KYB onboarding platform has limitations for ongoing monitoring to ensure continued compliance

• impact of ‘not understanding the customer’ regarding client risk profile and subsequent impact on the risk appetite of the business

A strong RegTech partner to deliver a changing approach to UBO management

Managing UBOs creates a headache for regulated businesses. It’s not only time consuming and expensive, but also has a detrimental impact on delivering KYC/KYB onboarding for new customers and monitoring existing clients.

Managing UBOs creates a headache for regulated businesses. It’s not only time consuming and expensive, but also has a detrimental impact on delivering KYC/KYB onboarding for new customers and monitoring existing clients.

To overcome these challenges regulated businesses need partner with a RegTech provider that has a robust automated process and additional workflow capabilities to enable faster onboarding and robust due diligence for Ultimate Beneficial Owner verification. 

Automation - eliminate the norm to focus on the unusual 

It is critical for organisations to have a holistic view of the process of automating data collection, storage and integration for easy information retrieval. This approach is one of the key elements to making UBO due diligence faster, more efficient and more reliable. By eliminating those checks that are easy to deliver, your RegTech partner should only flag the cases that require further manual investigation.

Partnering with a RegTech provider who has a single API that pulls data from various sources is citracal if you want to create full company hierarchy structures or to hold traceability references back to the original source. By automating UBO onboarding, UBO monitoring and event driven refresh cycles, you can significantly reduce the time, cost and risk involved in your customer due diligence activities. This approach also enhances the customer experience and demonstrates robust compliance to regulators through a detailed audit trail.

By definition, criminals do not comply with the law, so there will always be a requirement for some manual intervention. But having an automated approach to Ultimate Beneficial Ownership verification and identifying those that require the enhanced due diligence, rather than applying the manual process to all cases. It is only in the circumstances where there is a flag that the compliance officers’ skills and knowledge must be applied.