As the financial industry is highly regulated, ranking among the top institutes that face more scams. To combat various financial crimes such as money laundering and terrorist financing, government bodies designed rigid regulations. 

The Financial Action Task Force (FATF) designed the 40 recommendations to prevent money laundering in financial organizations. Companies have to verify their business identity to comply with these regulations. Ultimate Beneficial Owners (UBOs) are the persons who own 10-25% of the company. It is a must for the onboarding entity to unveil the UBO complex structure. 

Ultimate Beneficial Owners – Overview 

Companies can have various ownership structures. In some cases, the owners are individuals who control the business decisions. These individuals, known as Ultimate Beneficial Owners (UBOs), typically own a significant portion of the company, ranging from 10% to 25%. The company owners can be the people who dont manage the operation but enjoy the profit. Moreover, some companies follow the LLC company structure. They have miscellaneous UBOs and complex ownership structures. 

The FATF stated in the recommendations, “UBO is the natural person who ultimately owns or controls a customer and the natural person on whose behalf a transaction is being conducted.“ compliance with the AML/CFT regulations and preventing financial crimes depend on verifying the owner’s identity. 

Significant Impact of UBOs Verification 

Companies that onboard various businesses must build trust in their partners before onboarding. They must create a secure environment to pass assets and allow them to use their services. Dealing with legal entities is essential to growing revenue and boosting sales. Whether companies are onboarding customers or businesses, they have to comply with regulations, which positively impacts the company. It assists companies in preventing money laundering, financial fraud, terrorist financing, mass weaponization, and many more. 

Mitigate Fraud 

Through business verification, companies only onboard those who are legal and comply with international laws. This directly protects them from scammers in the initial phase. The disclosure of the company owners, in the beginning, will protect the enterprise from money launderers and terrorist scammers. This assists them in mitigating fraud and taking risk-assisted steps from the initial phase. 

Transparent Ownership 

Business verification by visualizing the company’s UBOs also enhances the transparency of the corporate ownership structure. This indicates that your partners are not involved in any illicit activities. Moreover, it helps find the actual source of the business funding. Verifying the owner onboarding entity ensures that the business and its owners exist in the real world, not only on paper.

AML Compliance 

Financial institutes and other companies that comply with AML regulations must verify the partner business UBO. This assists them in compliance and screening against the watchlist sanctions. Screening against AML, CFT, and PEPs shows that the company’s owners are not involved in illicit activities. It also helps them comply with national and international laws by conducting one step. 

Enhance Reputation 

The transparency in the ownership structure through the UBO verification shows the institutes’ dedication to preventing money laundering. This enhances customer loyalty to the brand, directly increasing the company’s revenue. The verification provides accurate results and clears the company owners with whom they do business. Companies know whom they are doing business with to increase their brand reputation. 

Challenges Companies Face During UBO Verification 

When a company uncovers the complex ownership of the business, it faces various challenges, from collecting the information to manually verifying the company’s UBO. The business might hide its owners in layers of many random entities. Given below are some primary challenges: 

  • Lack of technology awareness in the companies to store and manage the data 
  • Manual document collection and verification process, which consumes significant time 
  • Human resources are prone to error and provide false positive 
  • Inadequate risk-based approach during the compliance techniques
  • Various regulatory bodies constantly change obligations to align with these laws without instant alert features, which is problematic. 
  • The impact of not understanding the customer and risk profile will make the company vulnerable

Automate UBO verification 

Companies can comply with UBO checks through machine learning and robust AI technology. In the digital world, business owners can verify documents and collect essential records with one click. Moreover, the business verification software assists them in complying with rigid regulations to expand worldwide. There is also the perpetual KYB element in the automated UBO verification, which offers an instant alert to the company to monitor the update in regulations.

Posted by Raul Harman