The corporate registry is a vital source of legally relevant company data and statutory information about a legal entity. Corporate registries are used by firms to verify the identity of legal entities and natural persons to understand who ultimately owns or controls the business.
Beneficial ownership transparency and complex ownership structures has been a focal point in recommendations made by the Financial Action Task Force (FATF) in fighting corruption, money laundering, and tax evasion. Once criminal proceeds of crime enter the financial system, it’s very difficult to follow the dirty money trail and track illegal flows of funds. Shell companies and offshore tax havens are often used by money launderers to hide illegal funds and the true identity of beneficiaries.
Corporate registries are an essential tool to research and conduct Know Your Customer (KYC) due diligence and enhanced due diligence to prevent criminal activity. In this article, we’ll examine the importance of corporate registries, how they work, and what compliance professionals should know.
What Are Corporate Registries? How Do They Work?
A corporate registry is an official register of legal entities operating in a country. The corporate registry lists a company’s corporate name, status, registered address, shareholder and director names, and provides documents used to verify company information and corporate ownership. Corporate registries differ by country, and the differences range in format, what information is publicly available, who may access the registries, and how corporate records can be extracted.
Company registries record almost all information they receive and make this available to the public through their own websites. Records may be assigned a unique resource identifier (URI) for identification purposes.
Why Are Corporate Registries Important to KYC and AML Professionals?
Banking sector globalisation and international operations puts pressure on compliance teams operating in multiple jurisdictions who need to comply with country-specific KYC and AML regulations. Compliance professionals today must manage customer risk by carrying out a thorough risk assessment during the entire customer life cycle. Multiple factors affect the quality of a risk assessment, notably data quality. The identification of risk factors and red flags requires collecting, verifying, and analysing a plethora of documents, and attempting to verify beneficial ownership can be a timely and costly process. This is no easy feat by any stretch of the imagination.
The starting point and arguably one of the most important in corporate verification is obtaining official company registration documents and extracting reliable information used in KYC due diligence. Each jurisdiction operates a corporate or business registry which can be vastly different from another. Company details may be available in local language only, unstructured, and often not standardised. This impacts time-sensitive KYC reviews and may result in lengthy onboarding practices leading to a poor customer experience. Additionally, not all information may be available, such as shareholders and directors, date of birth, or other personal identifiable data due to local data protection laws and regulations.
Unsurprisingly, the most up-to-date, accurate, and legally reliable company information is important in KYC investigations. The data extracted from corporate records is an integral part of assessing ownership, identifying, and verifying shareholders and directors, and piecing together complex ownership structures. Corporate registries are central to the risk assessment and the risk-based approach in KYC compliance.
5 Things Compliance and AML Professionals Should Know About Corporate Registries
Corporate registries provide valuable information to compliance professionals, but navigating them is not as straightforward as it may seem. The following are five key points compliance professionals should know about:
- Upcoming changes in regulation. By March 2021, all UBO registries in EU/EEA countries must be interconnected. The Business Registers Interconnection System (BRIS) will connect business registers of each member state to a European Central Platform.
- Payment may be required. Trade and company registers may sit behind a paywall and require a fee to download documents. Others require authentication for right of access.
- There is no silver bullet. There are differences in the way corporate registries are organised. Although governments are the most common operator of business registers, the chamber of commerce, public-private partnership, or the court of justice may be responsible for operations. The information available in corporate records varies by country.
- Corporate registers can be centralised or decentralised. For example, in China, the responsibility of maintaining corporate registry records is delegated to the provinces and municipalities, but accessible through a nationwide system.
- Not all registries are digitised and not all have APIs. Some registries still provide hard copies of corporate records. Others offer ad hoc queries. Each business register is inherently different.
Corporate registries provide a single source of truth, thereby minimising the risk of regulatory fall-out. However, each corporate registry presents its own unique challenges. Navigating the corporate ownership landscape can be a time-consuming process, but real-time access to individual registries through a single-source service provider saves valuable time and effort in KYC endeavors.