What is UBO?
UBO Ultimate Beneficial Owner is the natural person who ultimately owns or controls a legal entity or structure, such as a company or trust. UBO while complying to KYC regulations helps to ensure that these institutions are not facilitating financial crimes, such as money laundering or terrorist financing, by providing financial services to clients who are not who they claim to be.
How does KYC impact UBOs?
KYC regulates UBOs for the identification & verification of the financial institutions and real persons owning a firm or entity. Financial institutions and regulated entities must identify the natural person(s) who ultimately owns or controls a legal entity or structure, such as a company or trust. This may involve reviewing documents, such as articles of incorporation or trust deeds, to determine the ownership and control structure of the entity. Once the UBO has been identified, the institution must verify the UBO's identity using reliable and independent sources, such as copies of identification documents.
UBO regulations for improved KYC
UBO regulations are an important part of KYC processes because they help financial institutions and regulated entities to understand the true identity and ownership structure of their clients. This enables them to assess the risk of financial crime, such as money laundering or terrorist financing, and to take appropriate measures to mitigate that risk. It also helps to ensure that these institutions are complying with laws and regulations designed to prevent financial crime and protect the integrity of the financial system.
Negative impacts of UBO regulations
Increased compliance costs:
Financial institutions and other regulated entities may incur additional costs to comply with UBO identification and verification requirements, such as the cost of obtaining and reviewing documentation, training staff, and implementing new processes. These costs may be passed on to the customer in the form of higher fees or charges.
Reduced accessibility of financial services:
The process of identifying and verifying UBOs can be time-consuming and complex, and may deter some businesses and individuals from seeking financial services or opening bank accounts. This can be particularly problematic for small and medium-sized enterprises (SMEs), which may have limited resources and may be more sensitive to compliance costs.
Identity theft and fraud:
To comply with UBO regulations, financial institutions and regulated entities may collect and store large amounts of personal and financial data about UBOs and their beneficial owners. This data may be vulnerable to identity theft and fraud, particularly if it is not properly protected.
Compromised financial privacy:
Some individuals may object to the disclosure of their personal and financial information as part of the UBO identification and verification process, particularly if they are not the UBO themselves but are required to provide information about the UBO. This can have negative impacts on financial privacy.
Some updates on Switzerland and UBO regulations
It is anticipated that Switzerland's decision not to adopt UBO (Ultimate Beneficial Owner) regulations will make it easier for criminals to use shell companies in the country and that this will lead to a significant increase in money laundering and other financial crimes. As a result, it is expected that the prevalence of these crimes will be higher in Switzerland compared to countries that have implemented UBO regulations.
AMLA & Switzerland
The Swiss Anti-Money Laundering Act (AMLA) requires financial institutions and other regulated entities in Switzerland to identify and verify the Ultimate Beneficial Owners (UBOs) of their clients if the client is a legal entity or structure, such as a company or trust. This process is regulated by the AMLA and is intended to help prevent financial crimes, such as money laundering, by ensuring that these institutions are aware of the true identity and ownership structure of their clients.
FINMA & Switzerland
Financial institutions and regulated entities in Switzerland are generally responsible for identifying and verifying the Ultimate Beneficial Owners (UBOs) of their clients. However, the Swiss Financial Market Supervisory Authority (FINMA) has the authority to request information about the UBO of a legal entity or structure if it determines that this is needed to meet the requirements of the Swiss Anti-Money Laundering Act (AMLA).
Final Thoughts
Criminals, including money launderers and cybercriminals, often find new ways to exploit the banking sector for illicit purposes. One of the biggest challenges in preventing these activities is detecting them in a timely manner. Implementing a strong AML (Anti-Money Laundering) framework that can trace, detect, and mitigate the risk of money laundering, terrorist financing, and other financial crimes is crucial to combating these activities.
