An Ultimate Beneficial Owner (UBO) is defined as ‘The natural person(s) who ultimately gains from, owns or controls a legal entity’. A beneficial owner can either be a direct shareholder of a given company, or have an equity holding in another entity that has ownership in the given company.
Understanding UBOs is a fundamental regulatory requirement, but can be a challenge due to multiple metrics, missing links and conflicting information. Now that it’s a regulatory recommendation to monitor UBO information for any changes, this is an additional effort for compliance teams.
Why review the Ultimate Beneficial Ownership of third parties?
- The Fifth Money Laundering Directive (5AML) set the expectation for monitoring and keeping UBO information up to date
- Ownership structures are complex and change often happens in multiple layers
- Percentage changes might go over or under the risk threshold set in the organisation’s policy
- Entities in the structure might change to be registered in countries deemed a higher risk
- Keep the most up to date view of owners for third parties
Maintaining up to date UBO information
Figuring out how to monitor and maintain up to date UBO information, without sacrificing efficiency and inviting increased operational pain is a real challenge. Monitoring is often done as part of a risk-based approach, through periodic reviews, when organisations start from scratch each year.
It is normally the case that a periodic review leads to key information, and sometimes significant levels of change being updated on the client and the counterparties in three main areas – firmographics, principles and ownership.
As an increasing number of requirements are being added to the ‘check and validate’ list, it is becoming harder to keep up to date with these changes.
Moving to continuous monitoring
Many organisations are now looking at how they can systemise the monitoring aspects of ongoing due diligence - moving from periodic review to continuous assessment. There are potential benefits to doing so, particularly when driving automation and rules to resolve hidden complexities:
- It allows organisations to “right size” their due diligence, checking those customers that have more frequent changes more often, and hence reducing exposure to risk
- Organisations can see smaller changes, and need only check the specific information that has changed, whether that be changes in general information as well as UBO, instead of conducting a full file review
- Allows for efficiency savings, through only checking clients that have experienced a change rather than refreshing all aspects of the information on all clients only to find out they have not changed
How to embrace monitoring
Our whitepaper - Beneficial Ownership Monitoring: The Challenges and Practicalities - explores how to overcome the challenges of UBO verification and monitoring, including:
- Approaches for consistent calculation of ownership and control
- Summarising the complexities of monitoring
- How technology can help organisations to embrace monitoring and assess the impact of changes