With an unfortunate spike in financial fraud and crimes, it has become crucial for businesses to verify the complex corporate frameworks. UBO screening is a crucial component of KYB onboarding to address illegitimate financial activities such as money laundering, bribery, and tax avoidance. In this blog, let’s discover the Ultimate Beneficial Owner (UBO) concept, the challenges associated with this verification process, and why it is important to ensure business operations.
What is the Ultimate Beneficial Owner?
The Ultimate Beneficial Owner is the person who has complete control over the company’s operations and owns shares up to 25%. They can either be the direct owners of the company by purchasing the company shares directly or may be linked to the business from their ancestors. All the UBOs of a company are included in the participatory chain in the list of owners. Ultimate Beneficial Owners (UBOs) are responsible for the major operations of an organization and also for controlling the company’s voting.
Conducting UBO Screening
- Collecting Company’s Credentials
The first step in the UBO screening is the collection of the company credentials. For a thorough verification of the Ultimate Beneficial Owners, a business must provide accurate and updated data such as:
- Actual name of the company
- Location/ address
- Status
- Details of the shareholders
These requirements are essential for validating the lawfulness and accuracy of a company.
- Analyzing the Participatory Chain
Every registered business or organization has individuals who run its operations. UBO screening is an extensive procedure that determines the ownership structure and identifies the individuals who own the business directly or indirectly. In this step, the beneficial owners are verified against the actual percentage and other criteria of UBO.
Every business must ensure that it is in compliance with the financial regulations. For this, it must conduct Anti Money Laundering (AML) and Counter Terrorist Funding (CTF) checks effectively as they ensure the legitimacy of the beneficial owners of the respective companies.
Challenges of UBO Screening
Implementing an accurate UBO screening approach is critical for the financial sector today. The verification procedure is critical to guaranteeing regulatory compliance and serves as an effective defense mechanism against potential financial difficulties such as money laundering and other unlawful monetary activities. Furthermore, several problems emerge while completing compelling UBO screening, necessitating strong benchmarks and innovative strategies.
- Unavailability and Quality of Data
Incomplete or irrelevant data quality hinders the precise identification of the ultimate beneficial owners. In any business, the UBOs are an important part and must be verified for secure and fair business operations. However, challenges such as lack of accurate data and unpredictability of the ownership structures can make the UBO screening an arduous task. Therefore, companies must rely on reliable business verification to fetch relevant data and ensure transparency in their corporate framework.
The complete UBO screening process is expensive, and therefore, organizations that have extravagant budgets can only afford this. The cost of this procedure can be a big challenge for small to medium-sized companies. Due to the limitations in the source, there is a high risk of potential crime in these businesses. Limited investment in the UBO screening can affect the efficiency of the process.
- Limitations in the Technology
UBO screening is a complex and time-consuming process requiring the integration of advanced technology. Automated business verification solutions are more efficient than traditional procedures involving human efforts. Another important thing to note here is that although technology improves the overall verification procedures, financial organizations can face limitations when embracing such tech-based solutions. This significantly hinders their capacity to filter beneficial ownership. However, investing in innovative technology and robust AML compliance can simplify the UBO screening process while also increasing its precision and efficiency.
Navigating and adhering to the essential requirements of Ultimate Beneficial Owner (UBO) screening regulations can be challenging due to their increasingly complex nature. In certain jurisdictions, political influence may impede thorough investigations or raise concerns about specific individuals or entities, complicating the overall UBO verification process.
- Ineffective Global Collaboration
Achieving effective screening for ultimate beneficial ownership (UBO) relies on establishing collaborative efforts and sharing knowledge among different countries across the globe. However, various jurisdictions often display reluctance to engage in such collaboration, posing significant challenges for financial institutions in identifying and demonstrating the beneficial owners involved in cross-border investments.
Concluding Thoughts
To conclude, UBO screening has significant importance in ensuring regulatory compliance according to regulatory standards and combatting financial crimes. While the complexity of the ownership structure can pose some threats, effective checks on the ultimate beneficial owners can eliminate the threats of money laundering, terrorist funding, and other types of financial crimes. Investing in innovative technologies and a robust AML compliance approach can simplify screening, enhance precision and efficiency, and create a more secure corporate environment. So what are you waiting for? Conduct UBO Screening now to enhance due diligence for your organization.