Identifying Ultimate Beneficial Owner (UBOs) is an onerous undertaking. Even if your Know Your Customer (KYC) specialists are highly capable and well-trained, the current dearth of reliable UBO registries means you’ll spend precious resources—time and money—just to remain compliant.
It can take KYC analysts up to 8 hours or more to uncover the details of every UBO of a complicated ownership structure. Because analysts typically work on multiple cases at once, UBO-related tasks can add as much as two weeks to the onboarding process.
Such delays are hardly the tone you want to set for your customer relationships. There are a few ways that you can address the challenges of UBO identification and verification, reducing your onboarding times as a result.
Taking a Closer Look at the Current Approach:
Accurate UBO information is central to the fight against money laundering and other financial crimes. Identification of UBOs untangles financial webs and reveals shell companies set up to pose as legitimate entities.
However, the logistics of manual UBO verification puts undue strain on law-abiding customers and the institutions that hope to win their business. Onboarding delays caused by UBO-related regulations often cause friction between the customer and the institution they’re dealing with.
Here’s how the current verification process typically works:
- An organisation’s KYC specialist requests UBO information from the customer
- If the customer doesn’t have UBO documentation prepared, they must conduct their own research and identify the Ultimate Beneficial Owner(s) of their organisation. Complex leadership structures can further complicate this process and delay onboarding
- Analysts receive the UBO documentation from the customer
- Analysts must independently verify the documentation. Publicly-available UBO registries, despite being a legislated requirement in the U.S., Europe, and other jurisdictions, remain few and far between
- Without comprehensive, accessible registries, analysts must conduct their own research, essentially mirroring the process that the customer has already completed
This manual process lacks consistency and can be a sour first note in the customer-institution relationship. The process is particularly headache-inducing when it involves cross-border research.
We’ve crystalised the primary issues that make identification of UBOs cumbersome, as well as techniques for addressing these challenges.
The Primary Roadblocks to Better Onboarding
As a compliance professional, you consistently face the following questions during the onboarding process:
- Does UBO-specific documentation exist for the organisation in question?
- If so, where is the documentation held, and is the documentation publicly available?
As Global Witness reports, only 37% of European member states had a publicly available registry of UBO data as of March 2020. This sluggish rate of adoption lags behind the deadlines set by the 5th AML Directive. American UBO registries are in even worse condition.
Some nations are even weighing the possibility of not revealing UBOs, making compliance professionals’ jobs far more difficult. Even when nations do attempt to comply with UBO-specific requirements, those nations’ registries are not always publicly accessible or contain incomplete information.
This paucity of trustworthy UBO documentation slows the onboarding process, creates costly inefficiencies, and poses a risk to healthy customer relationships. To make matters more complicated, traditional data suppliers are increasingly claiming to offer UBO data but do so with no guarantee of accuracy.
Financial firms ultimately pay the cost of inaccurate or insufficient customer information, including UBO data. Our 2020 AML Bank Fines Report found that 28 institutions were fined over 2.6 billion pounds, or $3.2 billion, for AML compliance issues last year.
We’ve identified several UBO-specific measures that can reduce the burden on both your organisation and your customers while insulating your company from compliance-related fines.
Actionable Tips to Improve Your UBO Verification Processes
Tip 1: Trust only primary data sources.
Third-party, stored, data sources may be infrequently updated with questionable provenance. Registries that store up-to-date UBO data are the kind that your company should rely upon. Such primary data sources can reduce the steps, and the time, required to complete your KYC processes.
Tip 2: Embed UBO verification tools into existing digital KYC processes, such as CLM systems.
To the extent that if you can integrate your UBO verification processes into your existing KYC infrastructure, do it. AML regulations will only become more stringent, and the sooner you can streamline your verification process, the better.
Tip 3: Make use of tools that can simplify the workflow of analysing intermediate and ultimate beneficial ownership.
KYC specialists need to trace the entire ownership structure of an entity as quickly as possible. Embrace any tool or technology that helps organise and present UBO-related data in a logical way that is easy to understand. There are tools out there that connect to a verified network of corporate registries, enact constant updates to shareholder information, and can operate within your existing onboarding framework.
Tip 4: Establish clear and consistent UBO verification policies to comply with regulatory obligations.
Current UBO verification requirements present a regulatory Catch-22. The rules for identification and verification of beneficial ownership have intensified, but those rules—as well as the real-world challenges of UBO reporting and verification—contain significant grey areas. Have clear and consistent policies for UBO verification, accounting for the regulatory nuances between jurisdictions. This will prepare your team to respond uniformly to the many variables that arise during the verification process.
Tip 5: Effective staff training to ensure appropriate delivery.
Effective, continual staff training is key to reducing UBO-related roadblocks and onboarding times. Training should also help your organisation avoid fines stemming from AML violations. The regulatory landscape related to UBO is constantly shifting. Your organisational systems need to adapt in response. Your staff should be well-versed in both the regulatory climate and how your systems operate in relation to those regulations.
Technology is and will continue to be, an invaluable resource for compliance professionals. Regulatory requirements appear to be expanding at an indefinite clip, and the cost of compliance is ever-rising.
Legislation such as the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (affecting U.S. businesses) and Europe’s succession of Anti-Money Laundering Directives continue the trend of stricter compliance rules and tougher fines for non-compliance.
Investment in proven compliance technology can reduce your exposure to fines while freeing your KYC specialists to focus on bigger-picture issues. As UBO verification looms larger as a compliance requirement, your company will benefit from access to reliable, up-to-date UBO data.