Ultimate Beneficial Ownership: the next compliance challenge

In our last blog, we discussed the recent trend for paying with cryptocurrencies, currently growing at around 30{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} per month. These payment instruments offer lower costs and much faster settlement compared with traditional cards and digital wallets.

However, those very advantages – speed and immediacy – are proving a real headache for regulators looking to crack down on money laundering and criminal activity by identifying the parties behind transactions. Warren Russell, CEO & Founder of W2, considers how to solve this compliance challenge.

Instant payments: faster – but safer?

If crypto still feels a little niche to some, then there’s another fast-rising payment type that’s caught the interest of consumers and small-to-medium enterprises, not to mention the criminal fraternity: instant account-to-account payments.

Recent figures from the UK Faster Payments Council show[1] that instant payments grew 49{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in April 2021 compared to the previous year for a total value of £212 billion over twelve months.

Instant payments are especially popular with SMEs as they promise faster settlement, allowing small companies and their staff faster access to their money.

As we’ve covered elsewhere, however, new regulatory regimes from the EU’s fifth Anti-Money Laundering Directive (5AMD) and extensions to the Financial Action Task Force (FATF) regulations for cross-border transactions now require financial institutions to identify the end users behind transacting entities over all payment methods including crypto and faster payments.

Across the EU, 5AMD has placed greater emphasis on transparency around ultimate beneficial ownership.

Under 5AMD, member states are required to maintain inter-connected, publicly available national UBO registries. Separate UBO registries for bank accounts must also be created, although these will only be accessible by authorities.

The Fifth Directive introduces “effective, proportionate and dissuasive measures or sanctions” for those failing to comply with UBO-related requirements.

This brief description shows that identifying the end users behind transactions is no simple task, especially with regard to transactions that are settling in near-real time – and irrevocably, in the case of some crypto payments.

Identifying the end users behind transactions is no simple task, especially when operating in near-real time.

In response to this challenge and in anticipation of new regulations coming to market in 2022 and 2023, W2 has developed an Ultimate Beneficial Ownership (UBO) addition to our Know Your Business (KYB) solution.

Based on an intuitive user-friendly interface, W2’s UBO identifier reduces risk and enhances compliance by displaying the connections between companies, officers and shareholders within and across jurisdictions.

By applying artificial intelligence and machine learning techniques to company records and transaction data, we deliver ownership tree reports that reach across all countries and regions to identify who’s really behind any transaction.

As regulators intensify their demands for the swift, automated retrieval of documentary evidence regarding a company’s ownership, we have created records that can be easily exported and are time-stamped to simplify auditing.

Our UBO solution also makes it possible to automatically retrieve documentary evidence that supports ownership, allowing for identification using these records both automatically through our software, and manually by investigators.

For more on W2’s new Ultimate Beneficial Ownership add-on to its existing KYB solution, please visit: W2 Global Data

[1] See UK Faster Payments Council: https://newseventsinsights.wearepay.uk/data-and-insights/faster-payment-system-statistics/