UBO Transparency, Capital Markets and Tighter AML Controls

The Financial Conduct Authority’s (FCA) Anti-Money Laundering (AML) Annual Report 2018/19 makes it clear that firms still have some way to go in their efforts to stamp out the problem.

To tackle what is becoming an increasingly pertinent issue, among the measures listed as being put in place within the last 12 months are regular inspections of the largest businesses, checks of others that are believed to present a high risk and a range of supervision and regulatory tools.

However, despite the fact that it is clear that strides have been made, there is a strong message being sent out: The need for tighter AML procedures and systems is still as relevant as ever, especially as some industries must ready themselves for a more stringent environment going forward.

From the level of transparency when it comes to ultimate beneficial owners (UBOs), to weaknesses across the professional services industry as supervisory bodies are found to come up short in the standards they maintain, there are key areas in need of significant improvement as the fight against money laundering continues.

One part of the industry that gets particular attention within the report is capital markets.

Generally speaking, capital markets remain behind the industry tide when it comes to KYC and AML, which in itself is surprising, given the volume of securities traded in this area and the fact that the level of interconnectivity seen around the world continues to increase.

The growth of capital markets is outlined in a report from New Financial, which states that the U.K.’s capital markets are “the largest in the EU and are roughly twice as deep relative to the size of the economy as in the rest of the EU.” Trends show that figures are increasing year-on-year, with London maintaining its place as a central player.

With this volume and evident growth, you have to assume increase in risk, so it is interesting to see that the FCA has highlighted this part of the industry.

If proper KYC and due diligence is not conducted within these securities, that exposes all of us to risk as consumers, so it is something everyone has to be aware of and work on. Beyond KYC, many firms don’t take that further step of conducting KYCC and getting to know their customers’ customers and who they’re dealing with further down the line, which means they may miss getting the full picture when it comes to beneficial ownership.

Regulation does not require KYCC, but not taking this measure when carrying out checks does increase risk.

What will change how things operate within the sector as a whole is the type of punishments we see. Typically, fines are handed down to banks, but until this is broadened out, we won’t see change.

It is obvious that the lack of transparency in regard to UBOs continues to be a major issue. The FCA mentions this as an area of concern and it is one where automation can be particularly useful and important.

Automating manual processes for UBO discovery provides firms with the information they need to make informed decisions fast. To make due diligence more efficient and present data in a way that’s easy to understand and manage, organizations can use intelligent process automation to simultaneously access multiple data sources and use the information retrieved to dynamically build out corporate structures.

Another area put in the spotlight in the FCA’s report is professional body supervision. Professional services firms have weak AML compliance procedures. Accounting firms especially must prepare for increased regulatory oversight and, as a result, will require robust KYC solutions moving forward.

We know the FCA is taking real action across the board when it comes to tackling money laundering. Now more than ever, firms must remain vigilant and not become complacent where compliance is concerned; it is no longer an option.