FCA warns UK financial institutions of UBO membership

After the start of the Ukraine crisis, the FCA sent letters to all UK financial institutions, warning them that the new economic bill will be accelerated. This bill includes a new register, which means that foreign owners of property in the UK must declare and verify their identity with Companies House. The aim is to prevent criminals and foreign oligarchs from using agents to set up businesses or buy property from them in the UK. Entities that refuse to declare their owners will face restrictions in selling property and those who break the rule could be jailed for up to five years.

The underlying problem is that some Russian businessmen have long used UK business structures for questionable deals or ill-conceived gains and that the UK financial system is – unfortunately – vulnerable to money launderers. ‘money.

This is the FCA’s bid to stop Russian criminals using the UK financial system to their advantage and this heartbreaking crisis has given the FCA the impetus to speed things up. Clearly, time is running out – the longer it takes to implement, the more time the sanctioned Russians will have to offload their assets, making it difficult for the UK government to prevent them from profiting from these deals.

So what can financial institutions do quickly?

The ability to track and trace Ultimate Beneficial Owners (UBOs) – the people who are the beneficiaries when a corporate transaction is made – is essential. In its letter, the FCA stipulated that all financial institutions must put in place appropriate checks and balances to track and trace to do this. And it’s essential that UBO’s identification and processes are not mere box-ticking exercises – that they are genuine attempts to identify these people, which means they can be subject to of penalties.

Financial institutions also need to reinforce KYB (know your business), the FCA’s corporate equivalent of KYC (know your customer) AML and sanctions regulations that have been in place in the UK for some time now. The FCA will want to know UBO information – the corporate structure of the organization that financial institutions deal with, who sits on the board of directors and who is the beneficiary of any transaction the company might make.

The message is that financial institutions need to get their relationships with Russian customers in order, and they need to do it quickly. If they don’t, the consequences will not only be financial in the form of fines – they will also suffer a reputational blow, because as the Ukrainian crisis worsens, companies that deal with Russia will become outcasts.

Marianne R. Winn