FATF Recommendation on Beneficial Ownership Information Revised

The Financial Action Task Force (FATF) presented the revised version of the Recommendation 24 and its Interpretive Note on the transparency and beneficial ownership (BO) of legal persons.

Amendments to the Recommendation have been proposed by stakeholders since June-August 2021, when the first White Paper consultation on the matter was published. It includes a number of key areas to elaborate on in order to introduce greater transparency and combat potential risks associated with beneficial ownership registers misuse. The ultimate aim of the document is to create conditions for competent authorities to timely access beneficial ownership information.

In this сonsultation, FATF requests companies and other legal persons, financial institutions, designated non-financial businesses and professions, and non-profit organizations to share their views and give comments on the initiative. It also welcomes data from both the countries who have already put beneficial ownership registers in place and those using alternative mechanisms.

Main Recommendation 24 Areas of Concern

Primary questions FATF puts up for analysis in the consultation are as follows:

• Risk-based approach for foreign legal persons. To manage the risks connected with foreign-created legal persons which operate in various countries, FATF is considering to introduce a requirement for foreign-registered  legal  persons to have sufficient links with these countries. As such, it is necessary to establish what a sufficient link with the country is, and what measures can be taken in order to establish it.
• Multipronged approach to collection of beneficial ownership information. FATF asks stakeholders to share their opinion on what constitutes a sufficient BO register, what role should national regulators play in verifying and keeping BO information, and how the accuracy of BO information should be checked. Following elements should paid attention to: access to registers for law enforcement and other competent authorities, costs  and  compliance conditions associated  with  beneficial ownership registers for governments and companies, risks associated with the introduction of registers.
• Adequate, accurate, and up-to-date information. FATF is considering how to clarify the procedure of accuracy evaluation of information by competent authorities. Specifically, it is necessary to decide how to identify  the  beneficial  owner’s  identity  and  means  of  ownership and  how to ensure this data is accurate  (i.e. should it be done through  the verification of  documents  or  otherwise) and up-to-date (i.e. updated within a certain period after any changes made to it).
• Access to information. The following must be established: who should have access to BO information, and how to protect its privacy and confidentiality.
• Bearer shares and nominee arrangements. The ways to strengthen control over bearer shares and nominee arrangements so that they cannot be used to conceal BO information of legal persons are being considered. To implement them, it is proposed to prohibit the issuance of new physical bearer shares and require that existing physical bearer shares  be  immobilized  or  converted  before  any  associated  rights  can  be  exercised. Another point of consideration is to oblige nominee directors and shareholders to declare their status.

Changes Made to the Recommendation 24 Following the Revision

As a result of consideration of proposals sent in by the stakeholders since the first publication, a number of amendments have been made to the original White Paper draft. New clarifications primarily concern the matters of collection of BO information and measures aimed at preventing the abuse of bearer shares and nominee arrangements.

Approved provisions worth special attention in the revision are:

• Beneficial ownership information (from a beneficial ownership register or another body) should be accessible to public authorities. Countries should decide, on the basis of risk, what  form  of  register  or  alternative  mechanisms  they  will  use  for access to information by competent authorities, and should  document their decision.
• In  order  to  determine  the  beneficial  owners  of  a  company,  competent   authorities will require certain basic information about the company, which should include, at least, information about the legal ownership and control structure of the company. All  companies  created  in  a  country  should  be  included  in  a  company  registry.
• Countries should ensure that public authorities have quick and timely access to basic and beneficial ownership information on legal persons in the course of public procurement.
• Countries should take measures to prevent and mitigate the risk of the misuse of  bearer  shares  and  bearer  share  warrants,  for  example,  by  prohibiting  the  issuance  of  new  bearer  shares  and  bearer  share  warrants, and immobilizing or converting existing ones into a registered form.
• Nominee shareholders and directors must disclose their nominee status and  the  identity  of  their  nominator  to  the  company  and  to  any  relevant  registry or another body  which  holds  the  company’s  beneficial  ownership  information.

At this point, the consideration of further proposals is still ongoing. The next stage of revision of the Recommendation 24 will take place in February 2022.

Sources:

https://www.fatf-gafi.org/media/fatf/documents/publicconsultation/White-paper-R24-Public-Consultation.pdf

https://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/Pdf-file_R24-Beneficial-Ownership-Public-Consultation.pdf

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