Defined as ‘The natural person(s) who ultimately gains from, owns or controls a legal entity’, Ultimate Beneficial Owner (UBO) is a fundamental component of performing due diligence. Due diligence is the process of taking reasonable care and effort to examine or screen potential partners/customers prior to entering a transaction where it is a branch within the regulatory compliance roadmap. Still with me? In short, identifying UBO is part of the due diligence process while ‘due diligence’ is part of the broader ‘regulatory compliance’. But of course, UBO and due diligence are only pieces of the whole Regulatory Compliance puzzle.
To combat Anti Money Laundering (AML) and Terrorism Financing, federal bodies are frequently piling on new regulations or stricter measures – and organisations can barely keep up. An already complex and cumbersome process, companies today are expected to walk the regulatory compliance tightrope while reciting π…backwards. Understanding UBOs for one, is essential to the due diligence process but it can be a challenge due to multiple metrics, lapse and/or conflicting information.
Organisations without a dedicated compliance team are worst off, monitoring and maintaining current UBO information without sacrificing efficiency is often a pipedream. Navigating the labyrinth of an entity’s beneficial ownership structure and identifying the UBO from varying ownership stakes are going to require more than a pair of keen eyes. Often, depending on the country and its legislation, an organisation is not obligated to disclose extensive information about its UBO as well.
Implications of non-compliance
The penalties of Regulatory Non-compliance can be hefty, from massive fines and sanctions to even imprisonment in some cases. But the blemish on a company’s reputation is strikingly irreversible in our digital age, practically permanent. The good news is that the authorities will not be handing down penalties without rhyme or reason, if the company can prove reasonable and adequate prevention efforts were taken i.e., Due Diligence.
Identifying UBOs before onboarding partners and customers is a key element of the due diligence process. While some information might be available online, publicly accessible data is rarely updated or verified in most cases. Periodic screening of associated entities is also painstakingly tedious without a single information source. Imagine buying groceries and necessities only from category-specific stores, where precious toilet paper and toothpaste must be bought from two separate shops. Manually ensuring regulatory compliance is not only a slow process but it also leaves you particularly open to human errors.
Implementing your due diligence process
More companies are either employing integrated compliance platforms that consolidates data from multiple sources or shifting to continuous monitoring to automate their due diligence processes. Smart Compliance Screening (SCS) is a regulatory compliance solution that overcomes the pain points of performing due diligence by congregating multiple information sources and tools onto a single platform to speed up secure customer/partner onboarding. Data can be shared across the enterprise to ensure information consistency between departments and users. This is extremely pivotal for some industries (mainly banks and financial institutions) where conducting an Enterprise-Wide Risk Assessment (EWRA) is mandatory to stay above board.
To minimise your exposure to reputational risk and enhancing know-your-customer (KYC) checks, SCS covers major watch, sanction and politically exposed people (PEP) lists. SCS enables you to confidently ascertain who you’re truly doing business with and when you should no longer.