Tougher new beneficial owner rules add pressure on firms’ AML capabilities
Financial institutions’ beneficial ownership screening capabilities face heightened scrutiny following the launch of new global transparency rules.
In early March, the Financial Action Task Force (FATF), the world’s anti-money laundering watchdog, agreed tougher rules on beneficial ownership to prevent criminals using anonymised corporate structures for money laundering or terrorist financing. The FATF update is designed to help authorities see who ultimately owns or controls a company, and trace assets.
The amendments to FATF Recommendation 24 – which apply with immediate effect – demand that countries “require companies to obtain and hold adequate, accurate and up-to-date information on their own beneficial ownership and make such information available to competent authorities in a timely manner.” Beneficial ownership information should be held by a public authority or body functioning as a beneficial ownership registry.
FATF evaluations have revealed a “generally insufficient level of effectiveness in combating the misuse of legal persons for money laundering and terrorist financing globally,” and that countries need to do more to implement the FATF standards. The update, the watchdog says, will significantly strengthen the requirements for beneficial ownership transparency globally to tackle concealment and the abuse of legal persons.
The FATF lacks enforcement powers, but countries that fail to comply will be blacklisted.
Institutions’ heightened responsibilities
Authorities in turn will likely up the pressure on any institutions with AML/KYC compliance responsibilities – including fund administrators, investment managers, trust companies, banks and advisors. Even greater onus will be placed on screening customers to accurately track and identify all underlying beneficial owners, both during client onboarding and throughout the lifetime of the relationship.
Complying with the enhanced expectations will take some doing. And many institutions will struggle to meet the standards.
Too often we see processes still reliant on manual checks and legacy technologies that lack the rigour and sophistication needed in today’s world. The work involved becomes laborious and time-consuming, the results unreliable and frequently deficient.
Regulators won’t look favourably on such shortcomings. In addition, poor processes add inefficiencies and costs that financial institutions can ill-afford to bear.
How to comply with beneficial owner transparency requirements
Delivering beneficial owner transparency instead requires an integrated technology platform able to capture and track complex, multi-level ownership structures. It needs to identify and verify customer and beneficial ownership identities, and flag high-risk relationships. Screening for sanctions and politically exposed persons (PEPs) should be automated and ongoing, as should the source of funds/wealth checks.
Document checklists help ensure all the appropriate supporting information for the companies and relevant individuals have been captured. Automated emails to request any missing documentation will further smooth the process. Systems that can monitor for data updates, such as a change of circumstance, and flag actionable items that require resolution will also boost automation and the screening capability’s integrity.
Real-time activity monitoring to spot suspicious transactions and catch any trigger events is similarly vital. Monitoring effectiveness depends on identifying AML risks, and triggering automated suspicious activity alerts any time one of a multitude of scenarios plays out. If a suspicious event occurs, automatically blocking the account ensures a swift response. Customisable whitelisting of scenarios and customer types can help minimise the number of false positives, reducing firms’ workload and costs.
The price of failure
The cost of lax beneficial owner screening processes and identifying deficiencies is high and getting higher – financially and reputationally. It’s a price financial institutions should do all they can to avoid.
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At Deep Pool, we go a step further.
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The Deep Pool team brings together qualified accountants, business analysts and software engineers to create a unique blend of industry know-how and experience. Having been on the client side, we understand what it’s like. That makes us ideally positioned to deliver the best fixes for administrators’ problems and frustrations.
And where they need it, clients can lean into us for support. By leveraging our consulting services, clients can plug those knowledge gaps that departing staff may leave behind. This is a partnership after all. And we are dedicated to helping our clients maximise their success.