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This article is part of our Opinions section, where we invite industry professionals to share their views on the most pressing technology questions of our time.
Anonymous owners, shell companies and intricate corporate structures are the perfect hiding place for money launderers and financial criminals worldwide. For fintech firms, however, identifying the Ultimate Beneficial Owner (UBO) of a company isn’t always straightforward. Appearances can be deceptive, and without clarity on who’s pulling the strings, businesses are left exposed to undue risk.
It might seem like an administrative headache, but in the ever-changing world of fintech, failing to monitor changes in UBOs can be a costly mistake.
Failing to track any shifts in ownership – whether it’s new stakeholders, changes in percentages or an entirely new ownership structure – can carry steep financial, legal and reputational costs.
For fintechs that fail to trace UBOs, the risk of becoming an unwitting participant in financial crime is alarmingly high. In early 2020, the Swedish financial authority handed Swedbank a 4 billion SEK (roughly £300 million) fine for failures in identifying UBOs, contributing to one of Europe’s largest money laundering scandals.
Billions of euros were funnelled through its Baltic subsidiaries without transparency about account beneficiaries, linked to schemes like the Russian Laundromat. These lapses led to regulatory fines, leadership changes, and damaged reputations.
UBOs, defined as the natural individuals who ultimately own or control a company, are more than just names on a registry. They represent the people pulling the strings, making decisions and, in the worst cases, using businesses to clean dirty money. For fintechs, tracking these changes isn’t just a regulatory requirement, but a core part of risk management frameworks.
A new owner might seem like a normal development, but appearances can be deceiving. Criminals, such as the Kinahan cartel, have increasingly turned to acquiring stakes in established, reputable businesses as a way to launder money or conduct illicit activities under the radar. By gaining partial or full control of a company, they can exploit its good name and established operations to mask the origin of dirty funds.
When a fintech firm fails to monitor these changes, it risks inadvertently facilitating financial crime. Whether through direct neglect or reliance on outdated information, ignoring UBO shifts can lead to severe consequences, including regulatory fines, loss of customer trust and even the closure of operations.
Ownership isn’t static, and criminals take advantage of gaps in oversight. A corporate client may have passed your onboarding checks when they first signed up, but over time, new investors or changes in ownership could bring in individuals who pose a risk.
Here’s how it works. Bad actors, such as Smart and TGR to take a recent example, target your customers using shell companies or hidden entities to quietly purchase a small stake in their business. At first, it looks like just another investor or business partner. But when you dig deeper, you find connections to high-risk jurisdictions, sanctioned entities and individuals, or organisations with a dark history of financial crime.
Without ongoing monitoring, these changes can easily go unnoticed, leaving the door open for criminals to exploit the situation. Once involved, they rely on the business’ established reputation to move illicit money, process illegal transactions or transfer funds across borders undetected. By the time it’s uncovered, the damage – whether it’s to your firm’s reputation or through regulatory penalties – can already be done.
But it’s not just about direct criminal infiltration. Changes in ownership percentages or new UBOs becoming involved in a customer’s business can significantly alter your risk exposure. An unknown stakeholder with a shady background, political exposure or adverse media, even at a small ownership level, could bring unwanted scrutiny to your company.
Fintech companies face a tough challenge: keeping up with the ever-changing ownership structures tied to their customers. Fortunately, there are smart ways to tackle these risks while staying compliant.
Automation plays a key role in monitoring changes to company ownership and control. Relying on manual processes can introduce significant risks, as human error, delays and oversight become more likely when tracking complex and frequently changing ownership structures.
Modern monitoring solutions can link directly to global UBO databases, tracking updates in real-time and flagging anything unusual. For example, if a new shareholder tied to a high-risk country or sanctioned entity shows up in a customer’s ownership structure, your compliance team gets an instant notification. Instead of wasting time digging through data, fintechs can focus on taking action when it matters, closing compliance gaps that criminals might otherwise exploit.
Access to a dependable, well-maintained UBO database is another essential tool for fighting financial crime. Ownership structures are rarely simple, and bad actors are skilled at hiding their tracks across borders. With access to comprehensive information sources, compliance teams can cut through this complexity, revealing who actually owns and controls a business, no matter where it’s registered.
Often, these databases go beyond basic ownership details, identifying connections to politically exposed persons (PEPs), sanctioned groups or individuals in high-risk regions. This kind of visibility gives fintech firms complete peace of mind, allowing them to react swiftly to potential threats and reduce risk before it spirals out of control. By staying proactive, fintechs can protect their business from bad actors while keeping compliance at the forefront.
