UBO REGISTER: A USEFUL TOOL OR MORE TROUBLE THAN IT’S WORTH?

In the ongoing struggle against financial and economic crime, the European Union has created a register listing all Ultimate Beneficial Owners (UBOs). In it, companies have to register all persons whose control over an organisation exceeds 25 per cent. The financial world has great hopes for this register, which has existed now for over six months. High time then for an initial evaluation: is it indeed helping banks and insurers to carry out customer surveys, or is it causing even more bureaucracy and problems in the area of privacy? ITDS consultants Hannah, Tom and Robin have done some checking.

The UBO register: what exactly is it?

The UBO register is a European Union initiative aimed at creating transparency and combatting financial crime, such as fraud, money laundering and the financing of terrorism. Every country in the EU has its own register. In the Netherlands, for example, it is part of the business register of the Chamber of Commerce. The register contains the UBOs of organisations in the Netherlands, in other words, the people who are the ultimate owners of the organisation or who wield significant control over it. These are people, for example, who own more than 25 per cent of the shares in a limited company or have a more than 25 per cent direct or indirect ownership interest in a general partnership. Thanks to this register, financial organisations can see exactly with whom they are doing business. Furthermore, in addition to the owners and shareholders of companies, the register also includes church administrations, small businesses like local greengrocers, interest groups and NGOs.

The register contains personal data of the UBOs, such as his or her name, date of birth, nationality and their interest in the organisation, thus also providing some insight into the UBO’s financial situation. Companies are expected to enter and maintain this data themselves, and nobody checks whether or not it is correct. By the end of March 2022, all companies must have entered the applicable data in this register.

The usefulness of the UBO register

While clearly well-intentioned, the business world is quite critical about this register. The Netherlands’ Chamber of Commerce has indicated it will not proactively check whether the UBO data provided by organisations is correct, which means that financial-services providers cannot make full use of the register for the verification of UBOs. What’s more, a feedback obligation has been placed on financial-services providers to report it to the Chamber of Commerce if they think that UBO data has not been entered correctly or completely in the register. In essence, rather than being a tool or an aid, it means that the register is creating more work for financial-services providers. They are mandatorily obliged to consult the register; but it doesn’t really give them anything in return.

Privacy concerns

On top of these doubts as to how useful it will be, there are also many privacy concerns. On the one hand, while it is laudable that the UBO register offers complete transparency about an organisation’s stakeholders, on the other hand you cannot help but wonder how far this transparency should go. It has been decided that the registry must be accessible to three groups:

1. Authorities and their financial research departments
2. Service providers that are subject to audits
3. Parties, such as citizens and investigative journalists, who have a “legitimate interest”

Legitimate interest

In many countries, that third group has attracted a lot of criticism, bearing in mind that “legitimate interest” is so open to interpretation. Because they are reluctant to bear the administrative costs of verifying whether a reason really is legitimate, a lot of these countries are often making the records completely public. The Netherlands has also opted to go down this route and has given everyone access to the register, for a payment of €2.50 per time. At a stroke, this has made the data of between one and two million people public. It’s hardly surprising then that Dutch interest group, PrivacyFirst, is so concerned about people’s privacy that it has already litigated several times to have the register revoked. It all goes to show how complicated it can become when fighting crime comes face-to-face with people’s privacy.

What use will it be?

In conclusion then, it would seem that despite the good intentions of the register, so far it has brought little benefit for financial-services providers. While many of these providers hoped the register would help them gain some insights into their customers’ UBOs, so far it has mainly generated more administrative work for them. If the Chamber of Commerce is not going to proactively check the data, it means that financial institutions will still have to do it themselves. Add to this the privacy concerns, and it has us wondering whether the UBO register will create more problems than it is likely to solve.

But what about you? What’s your take on the UBO register? Will it add enough value for you to compensate for its drawbacks? If you’d like to know more about UBO research and other CDD processes, get in touch with Robin Verkerk at r.verkerk@itds.nl.