The use of beneficial ownership data by private entities
Conclusion
The demand for BO data is growing as AML and other regulations expand and become more stringent, and companies keep up in their efforts to comply. In addition, demand has been created through new use cases as organisations strive to improve business processes and decision-making through the effective use of data and analytics.
Unfortunately, easy access to BO data that is reliable, complete, and accurate currently does not match the pace of demand. Further, the challenges companies experience with accessing and using BO data are impacting the ease and effectiveness with which they can meet their compliance requirements and constraining potential use cases outside compliance. Whilst the companies involved in this research make significant efforts in-house or through external service providers to access, clean, verify, and integrate the data into business processes, many challenges remain – there is only so much the private sector can do. Governments are best placed to ensure that BO data is regularly updated, collected, and stored according to standardised formats, verified at source, and made easily accessible in order to meet the growing demand for reliable BO data from the private sector.
Areas for future research
As noted initially, the researchers faced a number of access challenges and received responses from a smaller sample size than was planned in the methodology. Therefore, while the findings from the research generally chime with the wider literature, caution should be used when interpreting the results to be representative and widely generalisable. For example, the research is unlikely to have exposed significant regional gaps or other characteristics of the survey group that might have led to underrepresentation of certain entities or findings. Therefore, an area for future research includes expanding the research on data use by private entities to cover more entities in a representative sample, and including other industries.
The research identified a number of gaps in knowledge regarding private sector actors’ use of BO data. The first of these unanswered questions is about the incentives (and disincentives) for companies to provide accurate and timely information about their own BO. In contexts where government-mandated BO registers do not yet exist, the use of BO data for ESG-related use cases may create a growing incentive for companies to provide and update BO information.
Another question that was raised was the effectiveness of feedback loops between government and private sector entities. The private sector entities interviewed in the research mentioned a number of fora in which they could engage in dialogue with governments on BO. However, the researchers were not able to determine whether there was broad participation in these across and within different industries. Given that collaboration on approaches to improve BO data is being recommended, it would be important to establish more detail about what this collaboration might look like.
Related to this is the question of the extent to which companies can rely on government data, and what the liability implications of their use are. Currently, even when companies use BO data from government registers, they are required to conduct and demonstrate best-effort at verification. The EU’s fifth anti-money laundering directive requires private entities to report any discrepancies they find to registrars. If companies will need to conduct their own – potentially costly – verification checks, whether using public registers or not, this can be a disincentive for companies backing and using these registers. Additionally, if companies use public data, they are still liable for the repercussions when the data is incorrect. However, it is questionable whether this will realistically change in the near future, especially if government registers are still relying on discrepancy reporting to improve quality. More primary research should be conducted into the incentive structures around liability.
An additional area for exploration is the differing approaches companies operating in multiple markets may adopt for dealing with the variation in implementation of BOT systems in jurisdictions across their operations. The research found that the risk-based approach adopted by many of the companies meant that regardless of the extent and deepening of AML regulations in Europe and North America, uneven access to data in global markets means real limitations to what those regulations can achieve, even with best efforts at compliance. It will be interesting to see how far growth in regulations can push companies’ compliance efforts without real changes in the accessibility of government registers.
Finally, the researchers noted that smaller businesses may get left behind in using novel means to accessing and validating BO data due to the skills and costs required to do so. It will be important to monitor noncompliance in the coming years to identify if smaller companies are being disproportionately punished for a problem that lies outside of their capacity – and responsibility – to resolve.
Next page: Annex 1. Further information on research framework