IDR’s Head of MLRO and Managed Services explores the rise of beneficial ownership reporting requirements around the globe. He looks at the extent to which these will create additional compliance obligations for fund managers and outlines how, with +40,000 approved investor profiles, IDR’s trusted hub provides a solution.
Why are beneficial ownership requirements on the rise?
Improving transparency around beneficial ownership is a global priority and one which has moved higher up the agenda following Russia’s invasion of Ukraine and the economic sanctions which followed. The difficulties created by the use opaque structures in properly identifying sanctioned persons, have been brought into focus as countries and organisations seek to ensure sanctions are effectively enforced, highlighting gaps in the existing legislative framework. More broadly, establishing visibility of beneficial owners is an essential step in tackling financial crime and meeting AML / CFT obligations.
The move towards a global standard
In March last year, under Recommendations 24 and 25, the FATF (Financial Action Task Force) agreed upon tougher global beneficial ownership standards requiring countries to ensure that “authorities have access to adequate, accurate and up to date information on the true owners of companies”. It has also set out guidance around how to achieve this, which is being translated into legislation at a national level by countries and jurisdictions around the globe.
What does this look like at a national level?
Examples of recent developments at a national level to enhance beneficial ownership include:
US:
Incoming legislation under the Corporate Transparency Act in the US will require organisations to submit Beneficial Ownership Information Reports, from January 2024. This is part of a wider move in the US from a no KYC (Know Your Client) to some KYC regime. According to FinCEN (Financial Crimes Enforcement Network) Director, Andrea Gacki, this legislation will “help untangle opaque corporate structures” used to facilitate crimes including money laundering and sanctions and tax evasion.
Cayman Islands:
The Cayman Islands published a Beneficial Ownership Transparency Bill in August to consolidate and enhance the jurisdiction’s existing beneficial ownership legislative framework. It extends the requirement to establish and maintain a register of beneficial ownership to partnerships, including limited partnerships and exempted partnerships.
Luxembourg:
Luxembourg already has in place its own Register of Beneficial Owners “RBE,” access to which is restricted to certain categories of professionals (such as credit institutions and professionals of the financial sector licensed or authorised to exercise their activities in Luxembourg, law firms, etc.) to comply with the right to one’s own personal data.
Jersey:
In Jersey, the JFSC (Jersey Financial Services Commission) has recently completed a Thematic Review of Beneficial Ownership and Control, which identified room for improvement around reviewing all risk factors as part of the KYC process and identifying all beneficial owners and controllers connected to a client, and in particular gathering evidence to support identification.
Beneficial Ownership Registers:
Countries in the G7 and G20 have committed to working towards beneficial ownership registers and there is progress being made around the globe. Most recently Canada and Switzerland both announced plans to establish beneficial ownership registers.
What will these new regulations mean from a private markets perspective?
Fund managers will need to ensure they understand and comply with their obligations in relation to beneficial ownership rules. Whilst they may already be doing this as part of their existing KYC processes, they may want to review their procedures to ensure any incoming or additional requirements associated with identifying beneficial owners and reporting this information to the relevant authorities are met.
They will need to ensure they look beyond the customer entity to identify and verify the ultimate beneficial owners. This may require looking at complex ownership structures. Having identified all beneficial owners, managers will further need to ensure relevant KYC including sanctions screening, is then undertaken.
Despite multiple exemptions the incoming Reporting Rule in the US, is anticipated to have a significant impact on private investment funds. US managers will therefore need to implement KYC procedures to collect and review and report this information.
KYC and Beneficial Ownership, what is IDR’s approach?
At IDR we map beneficial ownership structures, identify ultimate beneficial owners, and authenticate these once as a standard part of our Internationally Compliant KYC service. In essence, we provide, a centralised register of pre-approved investors into the private markets.
How it works:
- Our team of legal, compliance and tax professionals start by identifying all beneficial owners, investigating, untangling complex ownership structures as needed. They then guide these beneficial owners through the KYC process, ensuring relevant identification documents and other information provided meets international standards.
- Having undertaken all the necessary KYC checks, we create a universally compliant investment profile for each investor which they own and control and can share across their portfolios.
- We prompt investors to update their profiles as needed and undertake daily screening against sanctions lists to ensure ongoing compliance.
- Fund managers benefit from access to pre-approved and up-to-date information which they can use it to meet all existing and incoming KYC and beneficial ownership reporting requirements with confidence and minimal additional hassle for their investors.
More than 50% of private markets investors are already approved on IDR’s hub. Why not join them? To find out more about how we assist you with beneficial ownership reporting and wider KYC compliance related obligations visit our website.
