The concept of determining the legal owners of a business can be a highly complex and multifaceted process, despite it being commonly thought to be straightforward. This complexity is often compounded by the existence of legal entities, which can make it challenging to identify the true beneficial proprietors of a company.
In the context of fintech, ensuring compliance with regulatory requirements is paramount during the onboarding process for new businesses, specifically those related to anti-money laundering and counter-terrorism financing. This necessitates the identification of a company’s Ultimate Beneficial Owners (UBOs).
However, the definition of UBOs varies across jurisdictions, and the process of accessing UBO records remains fragmented. Consequently, in our blog post, we aim to bring your attention to the latest developments in beneficial ownership, which various organizations should actively be monitoring.
Starting in January 2024, the United States will take a major step toward greater transparency in business dealings with the establishment of their first-ever Ultimate Beneficial Ownership (UBO) register.
In line with this, the Corporate Transparency Act was signed into law back in 2021, followed by Fincen releasing its Reporting Rule requirements in September of 2022. Even so, continuous efforts are being made to ensure better access to this register.
As an organization, it’s important to keep track of developments such as anticipated introduction of beneficial ownership registries in other nations such as Australia and Canada. Being updated on these changes is vital as it is the responsibility of businesses to comply with regulations concerning beneficial ownership.
By maintaining good communication and establishing strong onboarding and Know Your Business (KYB) practices, organizations will be better equipped to prevent the risks of money laundering and terrorist financing. With the establishment of the UBO register, businesses can better protect themselves and their clients while enjoying the many benefits of improved transparency and a stronger, more secure economy.
On April 24th, the European Parliament made an important announcement regarding their commitment to collaborating with the commission in tackling the critical issue of combating the exploitation of the financial system for money laundering or terrorist financing.
In a display of their dedication to enhancing AML/CFT regulations and preventing financial crime, the Parliament has undergone a drive to reform their current mandates. One significant development is their intention to refine the definition of beneficial owners in order to further secure the financial system against exploitation by criminals. To achieve this, the Parliament has decided to lower the previous minimum ownership threshold of 25% to 15% for most companies.
As an additional measure, a 5% threshold will be introduced for entities operating in the extractive sector or facing higher than average risks of money laundering or terrorist financing. Through these changes, the European Parliament has taken a significant step in cementing their resolve in establishing more stringent regulations for an overall safer, and transparent financial system for the public.
The Financial Action Task Force (FATF) has made a significant announcement in March 2023 regarding beneficial ownership. The guidance issued highlights the essential importance of understanding a “multi-faceted approach” that should be utilized at the national level. The authorities responsible for enforcing these regulations must ensure access to authentic, up-to-date, and comprehensive information about the beneficial ownership of legal entities.
These competent authorities should also ensure that primary and beneficial ownership data are updated promptly. It is crucial to take a broad-based approach when dealing with beneficial ownership to ensure that all relevant information is obtained, as this can help reduce the risk of financial crime.
Overall, this announcement regarding the beneficial ownership by the FATF is a crucial reminder of the importance of maintaining transparency when it comes to identifying the beneficial owners of companies. Furthermore, this helps to prevent money laundering and other illicit activities from taking place, which can ultimately harm the economy and society as a whole.
Looking into the future, we can anticipate a time when regulators will introduce additional measures to tackle issues surrounding ownership and UBO (Ultimate Beneficial Owner) information. This is due to the persistent challenge of fragmented information. Given the current milieu, we predict that there will be concerted efforts from various countries to promote greater transparency and collaboration in sharing this crucial information.
Our team will continue to closely observe these developments as we remain dedicated to providing cutting-edge solutions. Even as we prepare for the future, we will stay mindful of the ever-present potential for new changes and challenges that may arise. Our pledge to you is to remain proactive and take the necessary steps to keep pace with industry developments as we help our clients navigate these tumultuous times.