Originally Syndicated on June 16, 2024 @ 12:26 pm
Senior Director of Financial Crime Industry Practice at Moody’s, pressed the importance on Ultimate Beneficial Owner (UBO) compliance. It has been noted that FinTech companies have been neglecting it frequently. This way they FinTechs become eventually support for illegal activities such as online casinos.
UBO Compliance
In the current business scenario many companies are legitimate. However, some hide their identities to engage in illegal activities such as money laundering, human trafficking, and fraud. Complex ownership structures laid out to disguise illicit activities, integrating illegal funds into legitimate financial systems. An Ultimate Beneficial Owner (UBO) in such cases comes helpful. It controls and influences a company.
Regulations around UBO identification helps fight against financial crimes and protect the privacy of beneficial owners. The Financial Action Task Force (FATF) has amended its Recommendation 24 to require countries to ensure that accurate and updated information is available on beneficial owners. The EU’s sixth Anti-Money Laundering Directive also mandates precise information maintenance and requires strict penalties for non-compliance.
These regulations expect strong adherence and continuous monitoring from businesses. However, the lack of uniformity across jurisdictions poses a significant challenge for multinational corporations, leading to increased compliance costs and complexities.
Inadequate UBO checks can lead to severe financial and reputational damage. An example is the a major European bank’s Estonian branch, which failed to conduct comprehensive checks on high-risk customers, that resulted in $200 billion suspicious transactions. The bank’s CEO resigned, and the institution faced substantial fines and a halved share value.
Best Practices for UBO Compliance
To navigate the complexities of UBO compliance, businesses should adopt these best practices:
- Risk-Based Approach: Focus resources on high-risk clients and transactions to enhance due diligence.
- Regular Audits: Conduct routine reviews and updates of compliance processes to keep pace with regulatory changes.
- Technological Solutions: Utilize data collection automation, real-time monitoring, and AI to improve the efficiency and accuracy of compliance processes.
Issues such as data silos, high costs, and inaccuracies can hinder compliance efforts. Technological tools like machine learning and AI, can uncover hidden risks and relationships making compliance process smooth
Conclusion
As regulations become stricter, FinTechs and other businesses must prioritize UBO compliance to avoid being involved in illicit activities. Advanced technologies and adopting robust compliance strategies can help companies protect themselves from financial and reputational risks.
