Blogs
An ultimate beneficial owner (UBO) is the individual who ultimately owns or
controls a company, even when that ownership runs through other companies or trusts.
Under the UK Money Laundering Regulations, anyone holding more than 25% of the shares or voting rights, or who otherwise controls the business, counts as a beneficial owner, and firms must identify and verify them as part of due diligence.
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:
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.
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.
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.
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.
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.
An ultimate beneficial owner is the individual who ultimately owns or controls a company, whether they hold that interest directly or through intermediate entities. Definitions vary by jurisdiction, but the common threshold is 25% of capital or voting rights. The point of the test is to reach a natural person, not another company.
Work up the ownership chain until you reach individuals. Start with the corporate register, then trace each shareholding entity in turn. Registers alone are rarely sufficient, since the information in them is self-reported by the firm. Obtain a signed ownership statement from an approved officer and verify it against independent sources.
For a trust, the beneficial owners are the settlor, the trustees, any named beneficiaries, and anyone else exercising effective control. Where beneficiaries are defined as a class rather than named, the class is described instead. Trust structures are a common reason a UBO check stalls, so build the escalation route in advance.
Yes, for regulated firms including insurance. The Money Laundering Regulations require obliged entities to identify and verify beneficial owners as part of customer due diligence, and to hold adequate, accurate and current information. The UK opted out of 6AMLD, but the domestic obligation is unaffected.
If ownership cannot be established to a reasonable standard, the relationship should be declined. Opacity is itself a risk indicator. Documenting the attempt and the decision to walk away is what demonstrates the control was applied, and that record matters more to a regulator than the fact the check came back inconclusive.
Marketing Intern
Ellie Moeran is a Marketing Intern at REG Technologies. During her time with the business, she contributed to content focused on insurance compliance and regulatory awareness, including an article on Ultimate Beneficial Ownership (UBO) requirements.
The insurance industry and the regulatory requirements around counterparty risk is always evolving, and so the obligations to minimise the risk and safeguard customers is becoming much more challenging for insurance companies. In the wake of COVID-19, financial crime continues to increase and whilst not all of these can be stopped, it is crucial they are recognised.
The FCA and US Authorities are committed to enforcing anti-corruption and anti-money laundering laws and regulations to protect the integrity of the financial system and to prevent financial crime. In this article we look at the risks and the controls financial services firms should consider...
Regardless of their role in an insurance deal, brokers must verify that their potential clients and trading partners aren't barred from entering insurance transactions. However, carrying out these checks can be a challenging task. What is the impact of the task and responsibilities brokers have and how can they manage risks?
Client due diligence tools are software that verifies who a client is, establishes who owns and controls it, and screens those people for sanctions, politically exposed person (PEP) and adverse media risk, with every step recorded for audit. For insurers, MGAs and brokers the client is often another business, so the work centres on ultimate beneficial owners (UBOs), directors and officers rather than one individual's identity. A good tool collects declarations from the client, checks them against independent sources and keeps watching after onboarding. This post sets out what the UK Money Laundering Regulations 2017 expect, what a tool needs to do, how to choose one and how to keep records current.
