In the US, covered financial institutions must establish and maintain written procedures reasonably designed to identify and verify the identities of beneficial owners of legal entity customers. This is known as the Beneficial Ownership Rule.1 Covered financial institutions include banks and other depository institutions, broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities transactions.2 Beneficial owners are:
- any natural person having an equity ownership interest of 25% or more in a legal entity customer; and
- any control person (defined as an individual having significant responsibility for controlling, managing, or directing the legal entity customer). Examples include a chief executive officer, managing member, general partner, senior executive officer, or other individual who regularly performs such functions.3
If no individual satisfies the ownership prong, the covered financial institution must identify and verify the identity of a control person.
Financial institutions may rely on beneficial ownership information supplied by the customer, provided that they have no knowledge that would reasonably call into question the validity of that information. Beneficial owner due diligence must be conducted when a new account is opened, and during normal customer transaction monitoring if the financial institution detects information pertinent to its assessment of the money laundering risk posed by the customer and such information a possible change of beneficial ownership. The regulations do not apply retroactively; financial institutions must conduct this due diligence only on accounts established after the Beneficial Ownership Rule went into effect in July 2016.
In the UK, during due diligence of a new customer, regulated firms must identify all beneficial owners of the customer and take reasonable measures to verify the identity of the beneficial owners. This obligation does not apply when the customer is a listed company. A beneficial owner is defined as any individual who:
- exercises ultimate control over the management of the body corporate;
- ultimately owns or controls (whether directly or indirectly) more than 25% of the shares or voting rights in the company; or
- satisfies one of the conditions that would invoke the registration requirement for Persons of Significant Control.4
UK incorporated companies and LLPs must maintain a Register of People with Significant Control (PSC Register) that includes the name, date of birth, and address of beneficial owners.5 Taxable relevant trusts are required to maintain up-to-date details of the trust, including beneficial owners, and furnish those details to the HMRC, which maintains a register. A taxable relevant trust is a UK express trust or a non-UK express trust that receives income from the UK, has assets in the UK, or pays certain UK taxes.6
1 31 CFR § 1010.230.
2 31 CFR § 1010.605(e)(1).
3 31 CFR § 1010.230(d).
4 The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (2017 Regulations), SI 2017/692, art. 5 (UK).
5 Companies Act 2006, c. 46, pt. 21A, sched. 1A (UK) (as amended by the Small Business Enterprise and Employment Act 2015).
6 2017 Regulations, art. 45.