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AML 7.3.8 Guidance on identification and verification of Beneficial Owners



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4. In determining whether an individual meets the definition of a Beneficial OwnerG , regard should be had to all the circumstances of the case, in particular the size of an individual's legal or beneficial ownership in a transaction. The question of what is a "minor" ownership interest for the purposes of the definition of a Beneficial OwnerG in AML Rule 7.3.3 will depend on the individual circumstances of the customer. The DFSAG considers that the question of whether an ownership interest is minor should be considered in the context of the Relevant Person'sG knowledge of the customer and the customer risk assessment and the risk of money laundering.
5. When identifying Beneficial OwnersG , a Relevant PersonG is expected to adopt a substantive (as opposed to form over substance) approach to CDDG for legal persons. Adopting a substantive approach means focusing on the money laundering risks of the customer and the product/service and avoiding an approach which focusses purely on the legal form of an arrangement or sets fixed percentages at which Beneficial OwnersG are identified (or not). It should take all reasonable steps to establish and understand a corporate customer's legal ownership and control and to identify the Beneficial OwnerG . The DFSAG does not set explicit ownership or control thresholds in defining the Beneficial OwnerG because the DFSAG considers that the applicable threshold to adopt will ultimately depend on the risks associated with the customer, and so the DFSAG expects a Relevant PersonG to adopt the RBA and justify on reasonable grounds an approach which is proportionate to the risks identified. A Relevant PersonG should not set fixed thresholds for identifying the Beneficial OwnerG without objective and documented justification as required by AML Rule 4.1.1. An overly formal approach to defining the Beneficial OwnerG may result in a criminal "gaming" the system by always keeping his financial interest below the relevant threshold
6. The DFSAG considers that in some circumstances no threshold should be used when identifying Beneficial OwnersG because it may be important to identify all underlying Beneficial OwnersG in order to ensure that they are not associated or connected in some way. This may be appropriate where there are a small number of investors in an account or fund, each with a significant financial holding and the customer-specific risks are higher. However, where the customer-specific risks are lower, a threshold can be appropriate. For example, for a low-risk corporate customer which, combined with a lower-risk product or service, a percentage threshold may be appropriate for identifying "control" of the legal person for the purposes of the definition of a Beneficial OwnerG .
7. For a retail investment fund which is widely-held and where the investors invest via pension contributions, the DFSAG would not expect the manager of the fund to look through to any underlying investors where there are none with any material control or ownership levels in the fund. However, for a closely-held fund with a small number of investors, each with a large shareholding or other interest, the DFSAG would expect a Relevant PersonG to identify and verify each of the Beneficial OwnersG , depending on the risks identified as part of its risk-based assessment of the customer. For a corporate health policy with defined benefits, the DFSAG would not expect a Relevant PersonG to identify the Beneficial OwnersG .
8. Under Federal AML legislation, if the customer is a legal person, the Relevant PersonG must obtain information identifying the names and addresses of partners and shareholders who each hold more than 5% of the capital of the legal person i.e. it applies a specified threshold. This does not affect the approach that should be taken under AML Rule 7.3.1(1)(b) and AML Rule 7.3.3 for verifying the identity of Beneficial OwnersG , where no threshold is specified (see Guidance items 4 to 7 above). As a result, under the Federal AML legislation a Relevant PersonG will need to obtain information identifying partners and shareholders who hold more than 5% of the capital of the legal person. Then, in accordance with the risk-based approach in Guidance items 4 to 7, the Relevant PersonG should determine whether it is necessary also to identify other persons who may be Beneficial OwnersG , and verify their identity
Derived from RM117/2013 [VER9/07-13]
[Amended] DFSA RM196/2016 (Made 7th December 2016). [VER13/02-17]
[Amended] DFSA RM231/2018 (Made 6th June 2018) [VER15/07-18]