From CompliNEWS | Financial Service Intelligence Watch

Enhancing security in business relationships: Understanding UBO identification


In today’s legal and technological landscape, businesses must take stringent measures against fraud, aligning with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations. To do so, financial institutions are instituting Ultimate Beneficial Owner (UBO) identification procedures.

Delving into UBO identification

UBO identification is essential for validating the leadership of a legal entity and plays a crucial role in combating money laundering and terrorism financing. In complex corporate structures, UBOs can be entities with significant interests in a company or those directly benefiting from its operations, such as shareholders, beneficiaries, or those with authority over a trust.

Navigating the regulatory landscape

Numerous laws, regulations, and agency guidance contribute to the regulatory framework for UBO identification. Organisations like the Financial Action Task Force (FATF), the European Banking Authority (EBA), and others play a pivotal role in defining UBO identification rules. FATF Recommendation 10, for instance, emphasises UBO identification and appropriate verification methods. EBA’s Risk Factor Guidelines underscore the need for identity verification and risk-appropriate actions.

Legal requirements

The recent FICA amendments mandate UBO checks for financial institutions. These regulations require institutions to determine client UBOs, collect their personal information, verify their identity through official documents or publicly available information, and monitor for suspicious activities.

Addressing UBO Identification compliance challenges

Financial institutions can enhance UBO identification procedures by:

  • Implementing Risk Assessment – Evaluating each customer’s risk profile individually helps in assessing risk and preventing fraudulent activities.
  • Enhanced Due Diligence – High-risk customers should undergo rigorous identity verification and risk assessments, including scrutiny of corporate ownership and management.
  • Continuous Screening and Updating – Regular monitoring for suspicious activities and updates to UBO records are essential to detect and prevent illegal activities.

In conclusion, a comprehensive approach to UBO identification is crucial. Compliance with AML regulations, including robust business identity verification, is essential for businesses looking to avoid noncompliance costs.