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Beneficial ownership compliance: Gaps persist

Financial crime is pervasive, yet too many organizations still don’t know who they are doing business with. A Refinitiv survey highlights the gaps in beneficial ownership compliance, as well as the benefits of cutting-edge solutions in screening for risk.

  1. Financial crime legislation requires organizations to identify the real beneficial owners of any entity before establishing a business relationship.
  2. Asked in a Refinitiv survey about their onboarding checks, 53 percent of respondents selected KYC — dropping to just 27 percent for checks on beneficial ownership status.
  3. To address gaps in beneficial ownership compliance, organizations should urgently investigate solutions that visualize and map relationships and potential risk.

Anti-money laundering, anti-bribery and corruption and other financial crime legislation requires organizations to understand exactly who they are doing business with. This extends to identifying the real beneficial owners of any entity before establishing a business relationship.

Complying with these regulations can be far from straightforward though. This is partly because multi-layered corporate structures can muddy the waters, as highlighted first by the Panama Papers leak in 2016 and the subsequent Paradise Papers leak in 2017.

These leaks demonstrated that criminals are adept at using complex legal entity structures to hide the identities of their ultimate beneficial owners (UBOs).

But UBO challenges do not end there.

Reliable and complete business ownership information is often difficult to access, and to make matters worse, different jurisdictions have different methods of defining and recording ownership.

Watch video: Beneficial ownership screening with Refinitiv World-Check One

All this adds up to a compliance headache, but organizations cannot afford to forget that failure in this important area can lead to often severe regulatory action, financial penalties or potentially devastating reputational damage.

It is therefore crucial that organizations identify and screen the true owners of all entities with which they seek to engage, but real-world statistics show that this is not happening.

Beneficial ownership compliance

Refinitiv’s March 2019 survey of more than 3,000 managers with compliance-related responsibilities at large global organizations took an in-depth look at how firms are embracing innovation in the fight against financial crime, and delivered some interesting insights into UBO checks.

Respondents were asked to identify the checks they undertake (successfully or otherwise) when onboarding external relationships. The highest percentage (53 percent) selected KYC on the identity of clients.

Whilst it is concerning that such a low percentage (just over half) of respondents conduct this check, of far greater concern is the fact that this percentage drops to just 27 percent for checks on UBO status.

The survey went on to ask respondents to indicate whether the checks they selected are usually successfully conducted, and revealed that just 15 percent believe their UBO status checks to be successful.

Of further note is that, when technology is employed, success rates with relationship checks are proportionally much higher.

Staying with UBO checks specifically, success rates for tech users, although very low, are nevertheless twice as high as the rates for those who do not embrace technology — 15 percent as opposed to seven percent.

These statistics highlight the significant gaps in beneficial ownership compliance that persist, but also point to technology as a key enabler in improving compliance success.

Risk Revealed Event Series

Complete and reliable UBO data

If organizations are to successfully turn the tide on financial criminals and comply with UBO regulations, they need the right tools to unravel the complexity that can define many ownership structures. This means being able to:

  • Quickly build a holistic picture of beneficial ownership.
  • Visualize and map relationships and potential risk.
  • Identify and immediately screen relevant beneficial owners to uncover links to financial crime.

Such an approach allows compliance professionals to pinpoint heightened risk in line with the risk-based approach, and maximizes the effectiveness of often limited resources.

A persistent stumbling block is a lack of independent and reliable UBO data, but cutting edge solutions that deliver complete and reliable UBO data directly into in-house systems can enable compliance teams to identify UBOs quickly and easily, so that these can immediately be screened for any links to financial crime.

Our research has consistently shown that financial crime remains pervasive.

In 2018, the survey revealed that 47 percent of organizations had been the victim of such crime in the year preceding the survey, and our 2019 survey indicated that 72 percent of respondents were aware of financial crime in their global operations in the preceding year.

Given the ongoing and pervasive nature of financial crime, organizations cannot afford to allow gaps in beneficial ownership compliance to remain unchecked.

They should urgently investigate newly available solutions, not only to protect themselves, but also as part of wider global efforts to fight corruption.

Innovation and the fight against financial crime report