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Beneficial Owners

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Beneficial Owners – Key Takeaways

  • The main purpose of identifying the beneficial owner is to know who actually controls or benefits from the business, helping to prevent money laundering.
  • Identifying beneficial ownership is a legal and regulatory requirement, and not a box-ticking exercise; firms must actively verify the ownership.
  • Beneficial owner identification is required for corporate customers, trusts, partnerships, and complex ownership chains.
  • The consequences of failing to verify or identify the beneficial ownership will result in regulatory enforcement and penalties.

Who is a Beneficial Owner Under UK AML Rules?

A beneficial owner under the Money Laundering Regulations 2017 is the real person who owns or controls the business or assets, even though their name does not exist on the paperwork. 

The UK AML laws mainly use ownership and control tests, which include: 

  • Shareholding thresholds:  which means a person is considered a beneficial owner if they hold more than 25 per cent of the shares in the company, directly or indirectly.
  • Voting rights: the beneficial owner is also defined by the voting rights, which means the individual is considered the owner if they hold, indirectly or directly, more than 25 per cent of the voting rights
  • Control through other means:  even if the individual does not hold shares or votes, they can still be a beneficial owner if they have the right to control the company, including appointing or removing the majority of the board of directors. 

The difference between the legal owner and the beneficial owner is that the legal owner’s name is recorded on the papers, perhaps for holding shares for someone else, whereas the beneficial owner is the one who actually owns, benefits, or controls the company.
 

A company cannot be a beneficial owner, but an individual can, with the required AML checks to verify and identify the individual who owns or controls the company.

The Financial Conduct Authority (FCA) expect firms to identify the real owner of the company, and HM Treasury sets the policy direction to enhance transparency and the verification of complex structures to reduce money laundering risks.

Common Beneficial Ownership Scenarios in UK Firms

The key examples of beneficial ownership are as follows: 

  • Multi-layered corporate structures: Suppose a UK company is owned by another company, which is owned by another company, creating multiple structures and making it difficult to identify the real owners. 
  • Overseas parent companies: a UK company is owned by a registered overseas company outside the UK, and because of limited public information, it is hard to verify the ownership details.
  • Trust and nominees: when shares are held by a nominee company on the basis of trust, the firms often record the nominee who is not the actual owner, instead of the real owner behind the trust.  
  • Ownership without owning most of the shares: A person owning less than 25 per cent of shares, but having control by other means, is still considered a beneficial owner, but often overlooked. 
  • Onboarding and review errors: using outdated data during onboarding and failing to conduct ongoing reviews or monitoring increases the risk of missing the real beneficial owner.  

Beneficial Ownership Requirements Under UK AML Law 

The beneficial ownership requirements under UK AML law are as follows: 

  • The key obligations under the Money Laundering Regulations 2017 require firms to identify and verify the beneficial owner and understand the complex structures.  
  • Before establishing a business in the UK, the entities must obtain the PSC (Person with Significant Control) register of that customer from Companies House. 
  • The regulators expect financial institutions to identify, verify, and understand the complex ownership and who controls the business. 
  • The Joint Money Laundering Steering Group provides guidance to firms on how to implement UK AML law. It recommends that firms should look beyond paper, identify the real owner, and apply a risk-based approach. 
  • If you fail to comply with the UK AML law requirements, it will lead to escalation, including OPBAS, which oversees the professional bodies and escalates the issues.  

Why Beneficial Ownership Identification is Commonly Done Incorrectly 

The following are the reasons why beneficial ownership identification is commonly done incorrectly: 

  • The core issues include compliance failures, such as reliance on self-declarations, which means accepting what the customer says, without cross-verifications, incomplete ownership mapping, and misusing the thresholds.  
  • Firms also face difficulties with overseas entities, which involve foreign countries that are hard to verify and jurisdictions with limited transparency, making the detection of real owners difficult.
  • Complex business structures make it difficult to identify the beneficial owners. 

Effective Beneficial Ownership Identification and Verification 

To identify and verify the beneficial ownership, the firms must implement the following: 

  • The firms must set UK-aligned controls, which include documented ownership mapping processes to identify real individuals, using independent verification sources and not just accepting what customers say. Firms must escalate the issue to senior management when ownership is unclear. 
  • Firms must implement a risk-based approach, focusing more on high-risk and apply enhanced due diligence to enhance transparency. 
  • The controls must be linked directly to money laundering risk; they should identify who the real owner is and not treat it as a generic KYC checklist.   

Consequences of Failing to Identify Beneficial Owners 

The common consequences of failing to identify beneficial owners include: 

  • The regulatory risks involve the FCA imposing fines or restricting a licence for AML failures, or requiring the firm to carry out costly remediations to fix the gaps in AML controls. 
  • When criminal money is involved, the firms or individuals can also face criminal exposure. 
  • The MLROs, directors, and senior managers are considered personally responsible for the failure in AML controls. 
  • Beyond legal and regulatory actions, the failure to identify beneficial owners will lead to reputational damage, causing other banks and counterparties to end the relationship and making it harder for the firm to operate.  

How AML Consultants UK Supports Beneficial Ownership Compliance 

AML Consultants UK helps in supporting beneficial ownership compliance through independent ownership reviews, helping in identifying correct individuals, analysing complex structures, enhancing transparency, and providing FCA-aligned customer due diligence and enhanced due diligence remediation to comply fully with FCA expectations. AML Consultant UK helps in delivering practical, well-documented, and audit-defensible outcomes, helping in reducing regulatory and enforcement risks.  

Common UK Questions About Beneficial Owners 

The individual holding more than 25 per cent of shares or voting rights, or having the power to remove or appoint most of the directors, qualified someone as a beneficial owner in the UK. 

No, the beneficial owner does not always hold shares; holding voting rights and having control by other means also constitutes a beneficial owner. 

Firms identify beneficial owners in complex structures by tracing ownership through multiple checks, reviewing voting rights, and control arrangements. 

The FCA assess beneficial ownership controls by assessing whether the firms are applying risk-based approaches, independently verifying documents, and escalating them to senior management where risks are identified. 

If the beneficial ownership cannot be established, the firm must not proceed with business or transactions, and it should be treated as high-risk.   

 

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