Beneficial Ownership and UBO Identification: A Practical Guide
Identifying the ultimate beneficial owner is the part of customer due diligence that most often stops at the first company registry search. The register says who the shareholders are, the file records them, and the firm moves on — without having established who actually controls the customer.
This guide covers what the obligation requires, how to work through ownership structures that are not straightforward, and what to do when the answer cannot be established.
What the Obligation Requires
Under the Money Laundering Regulations 2017, firms dealing with a corporate customer must identify the beneficial owner and take reasonable measures to verify their identity, so that the firm is satisfied it knows who that person is.
This sits inside the wider due diligence framework covered in our customer due diligence guide; what follows deals with the ownership question specifically.
Beneficial ownership is defined by reference to ownership or control. The familiar twenty-five per cent threshold identifies one route — holding or controlling more than that proportion of shares or voting rights — but it is not the whole definition. Control exercised by other means counts, and so does the position of senior managing official where no beneficial owner can be identified.
The common error is treating the percentage as the entire test. A person who controls a company through contractual arrangements, through the right to appoint directors, or through influence over another shareholder may be a beneficial owner while holding no shares at all.
Working Through a Structure
The discipline is to keep going until you reach natural persons, and to record the path you took.
Where a customer is owned by another company, the shareholders of that company need examining, and so on upwards. Each layer should be documented with the ownership proportions, so the file shows how a holding at the top translates into effective ownership of the customer at the bottom.
Two practical points. Proportions multiply through layers, so a fifty per cent holding in a company that owns forty per cent of the customer is a twenty per cent effective interest — below the threshold, but worth recording because combinations can take someone over it. And a structure that terminates in another corporate entity has not been resolved; it has been abandoned partway.
Structures That Need More Work
Four arrangements routinely defeat a registry-only approach.
Trusts. The relevant persons include the settlor, the trustees, the beneficiaries or class of beneficiaries, and anyone else exercising control. A trust deed is usually necessary; a registry entry naming a corporate trustee tells you very little.
Nominee arrangements. Where shares are held by a nominee, the register names the nominee rather than the person behind them. Identifying the arrangement requires asking, and the answer needs corroborating rather than accepting.
Foundations and equivalent vehicles. Common in some jurisdictions, with control structures that do not map neatly onto shareholdings.
Widely held or listed entities. Different treatment applies where a company is listed on a regulated market with disclosure requirements, and firms should understand the basis on which they are applying any simplification rather than assuming it.
Registers Are a Starting Point
Public registers, including the UK’s persons with significant control regime, are useful and are not verification.
Register data is self-declared, can be out of date, and in some jurisdictions is not publicly accessible at all. A firm that has printed a registry page and filed it has gathered information; it has not yet taken reasonable measures to verify.
Verification generally means corroborating the identity of the individual — identity documentation and the usual checks — and satisfying the firm that the ownership position claimed is accurate. Where there is a discrepancy between what the customer says and what a register shows, that is a finding to resolve rather than a formatting issue.
When You Cannot Identify a Beneficial Owner
The regulations contemplate this. Where no beneficial owner can be identified after exhausting all reasonable means, the senior managing official is treated as the beneficial owner — but that provision is narrower than it is often used.
It applies where the firm has genuinely exhausted reasonable means and there is no beneficial owner to find, not where the structure is difficult and the firm has given up. The file should show what was attempted before the fallback was applied, and the firm should record that it took the decision deliberately.
A pattern of relying on senior managing official across a portfolio is a red flag in itself, and one that a reviewer will test.
Discrepancy Reporting
Firms carrying out due diligence on UK companies have an obligation to report material discrepancies between the beneficial ownership information they obtain and what the public register shows.
The obligation is narrower than it sounds — it concerns material differences rather than typographical ones — but it is frequently overlooked entirely, usually because the firm never compares the two in the first place. A process that collects customer-supplied ownership information and separately prints a registry page, without anyone reconciling them, cannot identify a discrepancy to report.
The practical control is a reconciliation step with a recorded outcome: what the customer said, what the register showed, whether they agree, and if not whether the difference is material. That step takes minutes and closes an obligation most firms do not realise they are missing.
Evidencing the Work
A beneficial ownership file that would satisfy a reviewer contains four things, and most contain two.
A structure chart or written description showing the path from the customer to the natural persons, with proportions at each layer. The documents relied on at each step, including the ones that were not conclusive. Verification evidence for each identified beneficial owner. And a short conclusion recording who the firm determined the beneficial owners to be and on what basis.
The conclusion is the element most often absent. Without it, the next person to open the file has a folder of documents and no record of what the firm decided — which is indistinguishable, in a review, from the firm not having decided.
Opacity as a Risk Indicator
The structure is not just something to resolve; it is evidence about the customer.
A multi-layered arrangement spanning several jurisdictions, with no apparent commercial rationale, is a risk factor regardless of whether the beneficial owner is eventually identified. The right response is to ask why the structure exists and to record the answer, not simply to work through it.
Where the explanation is thin, that should feed the customer risk rating and may point towards enhanced due diligence. It also connects to the source of wealth question, because a structure designed for opacity frequently accompanies a wealth narrative that does not reconcile.
Keeping It Current
Beneficial ownership changes, and firms rarely find out unless they look.
Periodic refresh tied to customer risk rating is the usual mechanism, supplemented by event-driven review — a change in the customer’s business, a transaction that does not fit, media coverage of a restructuring. Relying on the customer to notify changes is reasonable as a contractual term and insufficient as a control.
Each refresh should also re-run screening on any newly identified individuals, because a new beneficial owner may be a politically exposed person or carry adverse history that the original onboarding never considered.
Who Owns It
The framework sits with the MLRO, with the work usually performed by onboarding or relationship teams.
The quality of what reaches the file depends heavily on whether the people gathering it understand why. A team trained to complete a form will stop at the registry page; a team that understands the question will keep going and will flag the structures that do not make sense. That training is the highest-return investment in this area, because poor initial work generates rework that lands on the financial crime function.
Frequently Asked Questions
Is twenty-five per cent the test?
It identifies one route to beneficial ownership. Control by other means also counts, and a person with no shareholding can still be a beneficial owner.
Is a Companies House check enough?
It is a source of information, not verification. Register data is self-declared and may be out of date, and the identity of the individual still needs verifying.
What if the customer refuses to explain the structure?
Where the firm cannot complete required due diligence it should not proceed, and should consider whether the refusal itself contributes to suspicion.
How often should ownership be refreshed?
On a cycle driven by risk rating, and on any event suggesting the position may have changed.
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About the author
Adrian Lawrence FCA
Adrian is the founder and Managing Director of FD Capital. A Chartered Accountant and ICAEW Fellow, he became a finance director at 28 and has spent more than 25 years at C-suite level, including as finance director of a listed company and of a private equity backed management buy-out. Every search is run by our specialist team, with Adrian overseeing each mandate.
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