ICT Views

Defining Moments

by: (Associate Director, Research and Development) on

Hi everybody, and Happy New Year.

Apologies for the hiatus in blogs at the end of last year, but here we go again…

Matter of opinion

I was recently asked for an opinion on Beneficial Ownership, and how best to define it. The question arose as a result of the increased thrust for transparency and the potential implementation of public registers. At the moment, different legal instruments adopt different beneficial ownership concepts, according to the purposes followed by those instruments: e.g. the 3rd MLD, FATCA and so on.

So the question was posed to me around convergence – could there be a common ground?


What’s out there now?

I rather like the simplicity of this definition
from Investopedia (I have abridged slightly):

Definition of 'Beneficial Owner'

  • A person who enjoys the benefits of ownership even though title is in another name. 
  • Any individual or group of individuals that, either directly or indirectly, has the power to influence decisions.

There’s also the FATF one of course:

Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement. (Reference to “ultimately owns or controls” and “ultimate effective control” refer to situations in which ownership/control is exercised through a chain of ownership or by means of control other than direct control).

Finally, a document from Alacra seemed to have already taken apart the issue somewhat, based on the 4th MLD info already released:

"The Fourth Directive generally defines “beneficial owner” as “any natural person(s) who ultimately owns or controls the customer and/or the natural person on whose behalf a transaction or activity is being conducted.” Further the beneficial owner “shall at least” include, for corporate entities, the natural person who “owns or controls a legal entity through direct or indirect ownership or control over a sufficient percentage of the shares or voting rights.” 

(It also compares it to FinCEN and FATCA, which seemed like a useful exercise)

Summing up

What struck me, having had a root around the internet, is exactly the point that was made to me in the first place – there are a plethora of views and definitions, depending whether you are looking at tax, trusts, securities etc.

In respect of wider research in this area, my brief dive into it demonstrated that tax seemed to be the most broadly covered area. The UN and OECD come up a few times but the publications appeared very academic/legalistic – in my view making the issue more complicated. 

So I come back to my first point, from Investopedia. I honestly don’t know how workable this is, but for me, simplicity is the key here.

I particularly like the second part of the Investopedia bit: “any individual or group of individuals that, either directly or indirectly, has the power to influence decisions”. Does it have to be more complicated than that?

Less is more?

By way of underpinning my argument… if you consider UK Financial Services regulation, it has broadly moved from a lot of rules, through principles, to outcomes. We are now in a position where the FCA is increasingly saying ‘you tell us how what you are doing meets our required outcome…’ ie: we give you a high level idea and it’s up to you to work with it.

So this is my (perhaps naive) view on this BO definition. If it was high level and pretty much all encompassing, would it then leave less room for legalistic interpretations and loopholes?

It’s a tough one.

What does anyone else think?

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