Grey-area-UBOs

Filling in the ‘grey area’: the future for UBO registers

The release of ultimate beneficial owner (UBO) registers has become mandatory in the EU following the 5th Anti-Money Laundering Directive (5AMLD), and it could have some extremely positive ramifications for financial institutions. Although, this has quickly shown itself to be a divisive topic among industry professionals.

From our own findings in the AML/KYC Data Survey, around 46% of expert respondents believe that publishing UBO registers will not increase the confidence in entity data, with 28% of those stating that the effect of this directive is unclear— providing access, but not boosting confidence in the accuracy of the data presented, leaves room for improvement.

However, we feel that to make full use of their release, the future is not just to tap into these registers, but to integrate supplemental information to vitally fill in the knowledge gaps.

The purpose of giving access to ultimate beneficial ownership information, spurred by such publicised leaks as the Panama Papers, is to enhance the ability to identify criminal activity, and to make compliance with KYC obligations easier for banks. At Arachnys, the release of UBO registers poses a great opportunity to programmatically access ownership structures to find the real people at the bottom of a very large corporate chain.

It’s not simply about ‘ownership’ as the O acronym stipulates, which is where difficulties lie; there’s also the necessity to find out who controls various parts of a complex organisational system. While a “natural person” may be deemed a UBO, there are other pieces to the puzzle—organisational classes including trusts or charities, which may serve as intermediate owners, have data that could be a hidden treasure trove of useful information to investigate for both KYC and AML purposes. Without understanding both ‘ultimate’ and ‘intermediate’ ownership, illicit activity can sneak past the radar.

The usual way for an analyst to conduct an investigation of a corporate structure is a ‘black and white’ data search. The analyst for an institution can find a certain individual via corporate registries, or by using third party database services, whereby company information can be gained via an API. While these can certainly outline ownership structure, it is limited because many companies do not openly highlight their shareholder information. Where shareholder information is fully absent, it can be extremely difficult to find ownership of businesses, particularly in such industries as oil or pharmaceuticals.

In contrast to this usual KYC process, accessing the UBO registries present more possibilities. For example, the information pulled from a registry API can be more easily evidenced. If the registry resolves, or rationalizes, entities across the database then the shareholder information across multiple levels of hierarchy can be calculated automatically, removing manual work. Nevertheless, requirements to drill down further into the details of a particular intermediate (IBO) or ultimate (UBO) owner will still remain a manual task, especially in cross-border cases. Arachnys’ Universal Data Adapter can help access supplemental UBO and IBO data more easily, which would otherwise be out of reach on an UBO register.

Therefore, Arachnys sees information provided by the released UBO registers as an opportunity to more effectively guide access to the ‘grey area’ of data—the niche gaps in the information already provided by data providers. At Arachnys, the next phase of product development is to fill in the missing entity types so that more detailed information, not just that of ultimate owners, but also the controllers of various organisational classes that are all part of the complete puzzle, is provided. Once this is achieved, the full capability for investigating UBO registers is made possible.

The 5AMLD has pushed the requirement for these registries, but whilst this may make it easier to obtain information, there needs to be far more conclusive data available to make confident KYC decisions. Once the information for all organisation classes can be fitted in between the more binary ownership information, getting to the bottom of UBOs (to their ‘real terms’) is possible. The next frontier of advanced data gathering certainly involves UBOs, and further trust in entity data will hopefully be a very positive outcome from the EU directive after all.