Ultimate Beneficial Owners (UBO) – What you need to do now
The Ultimate Beneficial Owner (UBO) is the person that is the ultimate beneficiary when an institution initiates a transaction. Depending on jurisdiction the definition generally states that the UBO holds a minimum of 10-25% capital or voting rights.
In the UK, one of the biggest challenges facing insurance firms is to obtain UBO information as part of AML due diligence. If you do not get your UBO screening and reporting right, it can result in significant increases in risks of financial crime and ultimately, penalties and fines.
The key requirement for beneficial ownership information requires legal entities to obtain and hold “adequate, accurate and current” information on their counterparties’ beneficial ownership, including the details of the beneficial interests. This emphasis on the “currency” of data and providing up-to-date information is a key aspect of the regulations.
Here are our 5 tips to help you formulate a robust programme:
1: Meet current regulations
Identifying the UBO is part of Anti Money Laundering (AML) and Know Your Customer (KYC) processes. UBO screening is mandatory for specific industries under the Money Laundering and Terrorist Financing Prevention Act, including insurance. Failure to implement and follow the latest regulations can lead to significant penalties and fines.
2: Keep up to date records
As of June 2021, the 6th Anti-Money Laundering Directive (6AMLD) came into effect in Europe but the UK government decided to opt out of compliance, stating that the existing legislation goes far enough already. This does not mean UK firms can ignore their responsibilities for identifying UBOs. It is critical to establish and record who is ultimately controlling and benefiting from the business relationship. If transparency cannot be established, the client should be turned away.
3: Enhance due diligence
A recent study found that 37% of businesses surveyed had been a victim of fraud within the last year. Identifying and screening UBOs is also an important aspect of fraud risk management through enhanced due diligence. Including UBO screening as part of wider due diligence, helps to protect your business from individuals that present a risk. Carrying out these checks thoroughly allows your business to comply with regulation and combat fraud for the safety of your own enterprise.
4: Know where to look
The UK was one of the first countries in the world to introduce a public beneficial ownership registry in 2016 called “The Persons of Significant Control Register”. Other countries will follow, but the deadlines for them to do so have been extended making it hard to know where to look. It is important to remember that information provided to a register is produced by the target firm anyway. Therefore, even should a register check be available this may not go far enough. You should obtain a statement from the firm, signed by an approved officer of the business, detailing the ownership structure to supplement other checks you make.
5: Implement a REG Tech solution
As more countries complete their UBO registers, software can connect to them and provide fast lookups and continual monitoring. However, HM Treasury state that one of the minimum requirements when conducting due diligence is that “you must identify and verify a person acting on behalf of a customer and verify that they have authority to act on behalf of their company”. The world is trying to respond to increasing attention from regulators, albeit with registers not completed, there are already tools to automate suitable due diligence processes. Solutions should demonstrate that the compliance program obtains and holds “adequate, accurate and current” information on beneficial owners. Making this faster, smarter and safer provides customers with a smoother onboarding experience and demonstrates the levels of protections regulators require.
If you would like to discuss your UBO compliance programme and how REG Technology can assist we’d be happy to help.