Although the push for more transparency on business transactions and ownerships has been welcomed, it has created a new raft of reporting obligations resulting in additional demands on time and resource to create and maintain an additional register.
Some of the key challenges for companies tackling their UBO reporting requirements include:
- New countries: although the EU may have been a leader in introducing the reporting requirements for UBOs, other countries are now routinely establishing legislation for reporting. The US recently announced their intended approach (albeit with a substantial lead time before implementation) and Canada has been introducing requirements in several provinces. Several countries in the Middle East region have also introduced requirements in the second half of 2020, including UAE, Bahrain and Oman. This means keeping up to date with new requirements in different jurisdictions is key in order to complete your local obligations and avoid penalties.
- Different interpretations: although the EU Anti-Money Laundering (AML) Directives have created some consistency across the member states, there are still different approaches to UBO reporting, and even more so when you look at the approaches globally. There can be differences in the ownership percentages required, the information that needs to be reported, what will be publicly available and when updates need to be made. This means a real understanding of the individual country requirements is crucial in order to ensure the correct information is reported.
- Changes in legislation: the UBO requirements have been subject to revisions and changes which has led to delays and complications. In Europe, changes are mainly as a result of developments from the 4th to the 5th AML Directives. The changes required more transparency, as many countries limited access to the data reported than had been originally anticipated. Further, with a central shared electronic register across the EU being implemented, member states have had to adjust the collation of data in order to be able to participate in the new central register with their own electronic registers. Additionally, some countries have implemented the legislation quickly and not necessarily considered more complicated global structures which has led to legislation or guidance changes to which companies have to respond.
- Start/stop introductions: in several countries ambitious targets set for implementing the requirement to report, establishing an online register and issuing guidance on how to apply the legislation to group structures has led to missed deadlines, opening and closing of registers and general confusion. For example, delays and pauses in the development of the UBO reporting requirements which occurred in Cyprus and Hungary led to wasted resources in gathering information for deadlines which were subsequently delayed and the shifting of reporting requirements ultimately led to the use of more resource and time to identify the impact of the changes and new reporting requirements .
- Keeping up to date: when your UBO changes, or even just details of an existing UBO (such as their address) change it becomes a substantial challenge to update this if you have a number of entities in your structure. This is because it is most common for local laws to require UBO changes to be updated within a set timescale of changes occurring, or becoming aware of a change (usually a 14 to 30 day timeframe to update) and there can be a number of documents involved to complete the notifications and register the change.
- More serious penalties: as the UBO reporting requirements are generally tied to anti-money laundering and bribery legislation, this means typically the penalties imposed for false statements or lack of compliance can be more serious than typically seen in the corporate secretarial space. This creates even more of an imperative to keep UBO reporting up to date and accurate to avoid the serious consequences of non-compliance.
But with the growing obligations, what are the solutions to help manage this additional compliance?
- Technology: as with most compliance now, technology can assist in managing your UBO information and reporting. It can assist in collating and retaining the data of your UBO, and track where you have annual obligations to confirm the UBO data so that you receive reminders to take action.
- Internal measures: if you handle most compliance internally, this is another item to add to your monitoring and reporting approach. As with most requirements, once you have the relevant information you can set up your reminders, and take action when needed. Ensuring you have effective methods to keep up to date on global requirements should hopefully mean you become aware when new obligations are introduced in order to take action and monitor going forward. It's key not to overlook jurisdictions where you have a smaller presence, as any country could bring requirements in and there may not be a long lead time to react.
- External support: you can obtain a variety of support from external advisors, from a one off project to review and update your existing registrations and approaches, to completing the ongoing compliance on your behalf. If you already outsource some or all of your corporate secretarial compliance requirements, your service providers should be keeping you up to date on the local obligations, letting you know if the legislation changes, and highlighting new requirements, providing a proactive service.
Overall, the UBO requirements are here to stay and have to become part of the wider corporate compliance framework. Due to its newness, it remains an area that can be hard to predict and respond to and appropriate support is key to meeting the obligations, understanding how they apply to your structure, and keeping up to date on new approaches.
The Corporate Governance and Compliance team at DWF can assist with your UBO obligations across the globe. Please get in touch to see how we can support you.
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