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UBO Identification – Redefining Security Standards in Business Relationships

It may take some time and effort to learn about corporate hierarchy and to identify consumers. But in the legal and technological climate of today, enterprises must take precautions against fraud. Therefore, financial institutions must set up UBO identification procedures in order to be in accordance with AML and CTF rules.


In recent years, criminal organizations with malicious intent have increasingly concentrated their efforts on businesses lacking proper monitoring. In addition, doing business with banned or fraudulent partners carries substantial penalties and serious repercussions. Strict KYB verification, by in-depth investigation of the business and its clients, is necessary to limit money laundering in the financial services industry. Nonetheless, it is important to specify what UBO identification criteria entail and why they are relevant at this time.

Digging Deeper into the UBO Identification

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UBO identification is necessary to validate the leadership of a firm or other type of legal organization. On the other side, this process has the potential to aid in the fight against financing terrorism and money laundering.


Through regulatory measures, FATF combats money laundering, terrorism financing, and other financial dangers to advance transparency. When discussing banking and financial asset ownership, the term “legal entity” is used to describe any organization other than a natural person. 

The UBO can be easily identified in a corporation where the owner and manager are the same individual. In complex corporate structures, however, a UBO could be any entity holding a dominant interest in the company or directly profiting from its operations. Therefore, shareholders, beneficiaries, and anybody else who has authority over a trust may all be UBOs.


Comprehensive KYB  in corporate operations cannot be put into place without the identification of a beneficial owner. Knowing company policy can stop criminals from hiding behind legitimate businesses. By learning more about the people who run a company, other firms can avoid working with dishonest people.

What is the Regulatory Landscape for the UBO Identification?

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Laws, UBO rules, and agency guidance all contribute to the overall regulatory structure for determining who the UBO of a legal organization actually is. The Financial Action Task Force (FATF), the European Banking Authority (EBA), the Dutch National Bank (DNB), and the Ministry of Finance are just a few examples.


Here is a review of the laws that now apply to UBO verification:

  • FATF’s 10th Recommendation

To satisfy the financial institution, this approach emphasizes UBO identification and acceptable methods to verify their authenticity. FATF Recommendation 10’s Interpretive Note states that identifying information can be obtained through clients, public records, and other reliable sources.

  • FATAF Guidelines for the Legal Entity Beneficial Ownership

Considering the country’s risk profile, this advice proposes identity verification of beneficial owners and the justification for identifying them.


The EBA Risk Factor Guidelines recommend that clients take the appropriate steps to discover their beneficial owners, gather relevant data, and conduct acceptable verification checks. It has been suggested that the quantity and quality of CDD data be improved and that clients’ data be accepted to authenticate the beneficial owner’s identity. Therefore, the regulatory framework emphasizes UBO identification, risk-appropriate action, and comprehensive recordkeeping.

What are the Legal Requirements for UBO Identification in the United States?

Bank Secrecy Act (BSA) and FinCEN rules, especially those pertaining to customer due diligence, necessitate UBO checks in the United States. Because of these rules, financial institutions need to use complex methods to determine who the true owners of their accounts are. All financial institutions must follow the following BSA and FinCEN regulations:


  • Determine who the client’s UBOs are and collect their personal information, such as names, addresses, and Social Security numbers.
  • Only use official documents or information available to the public to verify UBO.
  • Always be on the lookout for any changes in the behaviour of clients and UBOs that can indicate dishonesty or risk.
  • If a client or UBO has reason to suspect illegal activity, they should report it immediately.

What Should Be Done About UBO Identification Compliance Issues?

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By adapting its anti-money laundering (AML) procedures to the unique risks posed by each customer and transaction, financial institutions can avoid compliance concerns. Banks and other financial organizations can use the following methods to improve their UBO identification procedures:

  • Implementing Risk Assessment 

Each customer of a financial services company needs to be evaluated on their own merits in terms of risk. It helps the client evaluate risk and stops fraudulent use of login information.

  • Enhanced Due Diligence Measures

Customers who present a high risk must undergo rigorous identity verification and risk assessment procedures. Investigations may include corporate ownership and management, references, and outside databases and watchlists.

  • Continuous Screening and Updating

It’s critical to keep an eye out for any suspicious activity on the part of the company’s customers and UBOs that might point to increased risk or illegal activity. It is important to update UBO records and review client risk when there is a change in beneficial ownership.

Final Thoughts

A comprehensive approach is needed to solve the problem of UBO identification. Other AML compliance criteria include business identity verification for clients with substantial workloads, expenditures, and complexity. That’s why any business that is concerned about avoiding the costs of noncompliance must have it.

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