There is tremendous difficulty in identifying or verifying beneficial ownership information primarily for regulated firms. Also with upcoming transparency rules to overcome anti money laundering activities it has become mandatory to maintain UBO information. Having the UBO data assures reducing the risk of corruption and the cost of compliance. These days firms are doing appropriate due diligence to safeguard their reputation against damage.
What is UBO?
The Ultimate Beneficial Ownership (UBO‘s) points to the natural person(s) who ultimately owns or controls a customer, that person can be anyone who exercises ultimate control over a legal person or an arrangement.
According to law, the Ultimate Beneficial Owners of a legal entity are the private individuals who directly or indirectly hold or control a stake of at least 25% in the capital or of at least 25% of the voting rights of the company, or who undertake the de jure or de facto management of the legal entity.
UBO came into light after humongous anxiety caused by a numerous numbers of terrorist activities, this terrorism financing and anti-money laundering were the root cause for birth of regulations focusing on ultimate owners.
It is well known fact that much of the economic activity is driven by big companies; some individuals possessing criminal intent have been using it as a vehicle for money laundering to make unlawful transactions appear as legitimate business.
Individuals who are criminals and corrupt hide their ownership of companies so that they are being identified as the individuals who ultimately profit from different illegal or prohibited activities. So to further control such activities different regulations were made compulsory across the globe majorly impacting two big financial economies US & Europe. In US FinCEN final rule on Customer Due Diligence (CDD) Requirements for Financial Institutions says it is inescapable to miss upon UBO information and in Europe Commission under the 5th EU Money Laundering Directive beholds stricter regulations in place around financial transparency.
The aim to identify the beneficial owners of every legal entity customer they have is facile: primarily to ensure that financial institutions exactly understand who their customers are? And what are the major sources of funds origination to ultimately avoid the money laundering or terrorist financing activities.
Major challenges or hurdles to accumulate ultimate beneficial ownership for legal entities or accounts are many; some of the facets of challenges are given below:
Multiple legal structures or corporate vehicles can overshadow the ownership of a legal entity. With combination of different legal structures, entities work as money launderers and sometimes transfer illicit gains.
Multiple level of ownership: As there are legal entities which have more than one layer of ownership, which increases the number of entities to be verified.
It is well known fact that different jurisdictions have variety of corporations, for entities across different jurisdictions; it becomes cumbersome to get independent records to identify and verify beneficial owners.
A lack of standardized documentation across various countries makes the task of fulfilling compliance obligations and confirming ownership is difficult.
Many number of sources are needed to understand ownership structure and validate UBO’s is a challenging task.
The above given challenges don’t end with validating any specific UBO for any legal entity, to keep up with regulator corporate actions resulting in merger& acquisitions which further change ownership structures is also in itself is a laborious and time consuming effort.
Since 2001, Xoriant CDi has been enhancing and implementing efficient data management workflows to better manage risk and reduce the cost of compliance without compromising on operational efficiency.
With years of experience Xoriant CDi has developed an innovative delivery platform CDi OnDemand to fulfill any reference data projects need. It has easily automated the process of delivering data projects related to beneficial ownership management, through pre-defined project templates namely hierarchy management, supporting both the above mentioned regulations of US & Europe based on AML guidelines.
Tracks corporate action associated with the entity and implements same to maintain accuracy in customer relationship and ownership.
CDi OnDemand offers a clear view of beneficial ownership; ultimate or complete structure. Also showcases scenarios with broken tree & circular relationships.
CDi OnDemand has a unique feature that allows effective cross-referencing of beneficial ownership information by certain identifiers.
Proactively managing data quality errors, such as duplicity in counterparty hierarchy, invalid values, etc.