What is verification of beneficial ownership information?
Verification is critical to generating high quality beneficial ownership information, but the term is used to mean many different types of checks and processes. Based on our research, we break down verification into three steps, to be taken together: authentication and authorisation, validation and truth verification. Understanding these steps can help design measures to improve data quality.
Authentication & authorisation - ensure the person submitting the information is who they say they are and that they are authorised to make the declaration
Validation - ensure that the data submitted is a legitimate possible value
“Truth” verification - identify potential mistakes and irregularities in the data, which may indicate that the statement made is not true, and publish the data openly so that others can also do so.
Whilst some verification activities are likely to require legal mandate, others can be adopted by making technical, system design or workflow changes. We will shortly publish a working paper, What We Really Mean by Verification and How It Can be Done, which will provide practical examples that can be applied at each of the three steps.
Five ways to improve data quality
Require identification for the person making the declaration, and the beneficial owner themselves, and where practical check this against existing government data to validate they are real people. This increases the risks associated with submitting false information, provided sanctions are present and enforced.
Use an electronic form that includes as many fields as possible from our example paper forms, and incorporate validation to constrain the responses that can be entered to certain fields (such as address, zip code, date of birth).
Publish sufficient information about beneficial ownership so that people can identify them - e.g. publish unique identifiers for each beneficial owner in the system, and contact address, month and year of birth.
Publish beneficial ownership information as open data using BODS so that others can easily use it and link it to other datasets.
Ensure adequate sanctions are in place for submission of false information, and that these are enforced in practice.
What information should be collected and published to improve verification and data quality?
We have created a set of example forms that include the information that we recommend companies should complete when declaring their beneficial ownership to a national register. These can be adapted to collect information using paper forms, or it can be transferred to an electronic system (see Systems section).
Some of the information collected should only be for government use and should not be publicly published (for example, a taxpayer number to check identification). Other information should be published openly (for example, name of the beneficial owner). However, there is no one-size-fits-all approach to beneficial ownership transparency and the information you collect will depend on the intended policy impact and wider legal framework.
What sanctions help ensure compliance with beneficial ownership transparency?
In order to be an effective deterrent to non-compliance, sanctions must be sufficiently harsh to outweigh the perceived benefits of non-compliance, whilst being proportionate within a country’s overall legal framework.
The UK’s model allows for sanctions against beneficial owners, companies and company officers. The sanctions include imprisonment for up to 12 months (or two years if convicted on indictment), a fine, or both and the ability to strike off any companies that default on their obligations to report to the register. See the legislation for details.
Sanctions are irrelevant unless they are enforced. When an individual does not cooperate with disclosure requirements, a company should be able to sanction a beneficial owner or an individual suspected of being a beneficial owner, by restricting their right to sell or otherwise benefit from the legal ownership of their shares. See the UK legislation for an example.
What is good practice for evaluating and improving data quality?
Good practice on how to collect and verify beneficial ownership data is still emerging, and there are likely to be many useful innovations in the coming years. An effective approach to ongoing improvements in data quality will include monitoring compliance with the disclosure requirements, analysing the data to identify and investigate suspicious entries, and monitoring the use and effectiveness of sanctions for non-compliance. The processes put in place should involve stakeholders, including users of beneficial ownership data, to efficiently identify where and how data quality can be improved.