UBO Register: 3 changes, 2 challenges and 1 lesson learned

UBO Register

According to the European legislator, the Register has been introduced because^[1] “Accurate and actual information on the ultimate beneficial owner is a determining factor when detecting criminals whose identity would otherwise have been hidden behind a corporate structure.” Data in the Register will therefore be accessible both to law enforcement agencies and (in part) to AML ‘gatekeepers’. These include banks, who will be able to see the UBO’s name, month and year of birth, nationality, country of residence, and the nature and scope of the interest.

Under the Dutch Commercial Register Act [Handelsregisterwet] 2007, the Register held at the Chamber of Commerce must state the UBO of a company or legal entity^[2] (‘entity’) and specify which data have to be recorded. The entity’s owners and/or board are responsible for registration.^[3] Entities already in the Commercial Register must complete their UBO registration within 18 months by March 27, 2022.

Three changes in the Dutch AMLD

The introduction of the UBO Register has resulted in some changes in the Dutch Money Laundering and Terrorist Financing (Prevention) Act [Wwft]. The three most important changes are:

1. KYC/CDD (Article 3(15) Wwft)

Financial institutions^[4] cannot rely solely on the UBO Register for their KYC/CDD checks. They still have to conduct their own independent research. When entering new client relationships, they also have to check whether clients have listed their UBO in the UBO Register (Article 4(2) Wwft).

2. Duty of notification (Article 10c Wwft)

Financial institutions must notify the Chamber of Commerce of any discrepancies between the UBO that they determine and the data in the UBO Register. In the first 18 months, this applies only in respect of entities that have already listed their UBO in the Register and not if an entity still has to register its UBO.

3. Pseudo-UBO

As a last resort, and if an entity’s UBO cannot be determined in any other way, the entity’s full statutory board should be registered as the UBO.

Two challenges

The UBO Register presents new challenges for financial institutions and their analysts who may need to consult the Register on a daily basis. The two main challenges are:

1. Additional administration and costs

To comply with Article 10b Wwft, financial institutions wanting to consult the Register have to manually log in and extract data from the Chamber of Commerce. They also have to pay a fee each time they consult the Register. Opportunities for automating this process are not yet even in the planning stage. Digitalizing the relationship between the Chamber of Commerce and financial institutions – so that, for example, banks can automatically (or at least semi-automatically) retrieve the UBO from the Register – would be a major improvement.

2. No immediate benefits for financial institutions

Although the new regulations mean additional administration and costs, the benefits are not directly visible. So here, too, there is a great opportunity to digitalize the relationship between the Chamber of Commerce and financial institutions. This could include an automated check to verify whether the UBO determined by the bank is the same as the UBO in the Register.

For banks, the UBO Register’s main immediate benefit is in situations where the Register highlights a ‘bad’ UBO that the bank did not identify during its CDD procedures. This will improve banks’ AML risk management. But how often banks will benefit from this has yet to be seen. In any event, no efficiency gains are expected in the short run.

One lesson learned

The UBO Register brings us one step closer to unraveling financial crimes and deciding who to hold accountable for entities’ actions. Financial institutions believe the UBO Register could be of great value once it has been accurately filled across the EU. But, for now, the new regulations – and the changes they mean for KYC/CDD practices – create challenges.

The lesson learned is that these challenges could have been minimized if the institutions, as the main users of the Register, would have been able to work more effectively with the Chamber of Commerce to build and implement the Register. Together, they could have created a Register that works efficiently and effectively for all. Luckily, discussions are still ongoing and it is hoped that these will result in the first steps being taken towards a more automated UBO Register before too long.

Sources:

[1]-Amended Fourth European Anti-Money Laundering Directive 2018/843.

[2]-Companies or other legal entities as referred to in Article 10a (2) Wwft (corresponding to Article 5 or 6(1) Handelsregisterwet) and listed in the Commercial Register, with the exception of owners’ associations (verenigingen van eigenaars) and other private entities as referred to in Article 6(1)(b) Handelsregisterwet 2007.

[3]-See Article 18 Handelsregisterwet 2007 for more information on the persons responsible for arranging registration.

[4]-See Article 1a Wwft for the financial institutions within scope of this legislation.