Published: 20 August 2019
Author: Nicholas Stein
Background: The anti-money laundering directives have put the onus on financial institutions to provide more information on the transactions of their clients and for not taking the top-level client at face value, investigating who the Ultimate Beneficial Owner is.
Legal Regulations: The first AML directive enacted in 1991 (AMLD1) introduced customer verification requirements to banks and credit agencies. In 2001, AMLD2 caught the EU market up to the FATF regulations, the areas of business affected were expanded and offences were refined. In 2005 AMLD3 added accounting and legal services and introduced a risk-based approach in the area of due diligence. AMLD4 in 2015 increased the regulation load on financial institutions, putting more emphasis on beneficial ownership and set high penalties for non-compliance.
AMLD5 is the newest legislation that will become effective from January 2020. Among even stricter rules, it expands the depth and scope needed for companies and trusts to prove the beneficial owner and related PEP and sanctions checks.
Data requirements: It can take months to truly discover just one corporate client’s Ultimate Beneficial Owner and the documentary evidence of such discovery can only be six weeks old. To achieve this manually is a big cost centre. Regulatory Technology(“RegTech”)solutions supporting the discovery process speed up regulatory compliance checks, free up resources for risk evaluations of relevant customers, and result in significant economic efficiencies.
Case study: A CEE banking group has implemented a company’s UBO discovery tool, an AI-based solution, to significantly reduce the time and cost involved in identifying the ultimate shareholder using information from authoritative company registers. As a result of the project the client immediately meets the regulatory requirements of AMLD4, while reducing their total costs by up to 50% and the time taken by up to 80% for this part of the enhanced due diligence check.
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