Guidance on verification of Beneficial Owner
40. In determining whether an individual meets the definition of a Beneficial Owner or controller, regard should be had to all the circumstances of the case, in particular the size of an individual's legal or beneficial ownership in a Transaction. The question of what is a "small" ownership interest for the purposes of the definition of a Beneficial Owner will depend on the individual circumstances of the Customer. The Regulator considers that the question of whether an ownership interest is small should be considered in the context of the Relevant Person's knowledge of the Customer and the Customer risk assessment and the risk of money laundering.
41. When verifying Beneficial Owners under Rule 8.3.1(1)(a), a Relevant Person is expected to adopt a substantive (as opposed to form over substance) approach to CDD for Legal Persons. Adopting a substantive approach means focusing on the money laundering risks of the Customer and the product/service and avoiding an approach which focuses purely on the legal form of an arrangement or sets fixed percentages at which Beneficial Owners are identified (or not). It should take all reasonable steps to establish and understand a corporate Customer's legal ownership and control and to identify the Beneficial Owner. The Regulator does not set explicit ownership or control thresholds in defining the Beneficial Owner because the Regulator considers that the applicable threshold to adopt will ultimately depend on the risks associated with the Customer, and so the Regulator expects a Relevant Person to adopt the RBA and justify on reasonable grounds an approach which is proportionate to the risks identified. A Relevant Person should not set fixed thresholds for identifying the Beneficial Owner without objective and documented justification as required by Rule 5.1.1. An overly formal approach to defining the Beneficial Owner may result in a criminal "gaming" the system by always keeping his financial interest below the relevant threshold.
42. The Regulator considers that in some circumstances no threshold should be used when identifying Beneficial Owners because it may be important to identify all underlying Beneficial Owners in order to ensure that they are not associated or connected in some way. This may be appropriate where there are a small number of investors in an account or fund, each with a significant financial holding and the Customer-specific risks are higher. However, where the Customer-specific risks are lower, a threshold can be appropriate. For example, for a low-risk corporate Customer combined with a lower-risk product or service, a percentage threshold may be appropriate for identifying "control" of the Legal Person for the purposes of the definition of a Beneficial Owner.
43. For a retail investment fund which is widely-held and where the investors invest via pension contributions, the Regulator would not expect the manager of the fund to look through to any underlying investors where there are none with any material control or ownership levels in the fund. However, for a closely-held fund with a small number of investors, each with a large shareholding or other interest, the Regulator would expect a Relevant Person to identify and verify each of the Beneficial Owners, depending on the risks identified as part of its risk-based assessment of the Customer. For a corporate health policy with defined benefits, the Regulator would not expect a Relevant Person to identify the Beneficial Owners.
44. Where a Relevant Person carries out identification and verification in respect of actual and potential Beneficial Owners of a trust, this should include the trustee, the settlor, the protector, the enforcer, the beneficiaries, other Persons with power to appoint or remove a trustee and any Person entitled to receive a distribution, whether or not such Person is a named beneficiary.