Financial Crime World

Here is the converted article in Markdown format:

CSPs Fall Short in Identifying Shareholders and Business Owners

A recent thematic review has revealed that some Corporate Service Providers (CSPs) are not doing enough to identify shareholders and business owners, putting the financial system at risk of money laundering and terrorist financing.

The Review’s Findings

  • 23% of CSPs do not have written procedures for obtaining information on the value of share capital or assets of the company being formed.
  • 40% of CSPs sampled did not request supporting documentation to verify the source of funds (SOF) when the risk assessment indicated a high-risk transaction.

Regulatory Obligation

According to Section 2.2 of the IPs Part II for CSPs, it is required to obtain information on the value of share capital or assets, and depending on the ML/FT risks identified, obtain documentation evidencing the SOF and/or assets forming the capital of the company or partnership.

Areas for Improvement

While CSPs generally apply their obligation to obtain information on the SOF in relation to the share capital or assets of the company, there is room for improvement. CSPs should consider the risks identified from the CRA carried out and only request supporting documentation to verify the SOF if it is assessed that there are higher risks in this context.

Additionally, CSPs should enquire further and consider whether to request supporting documentation to verify the SOF if the information gathered highlights gaps between the funds required to finance the initial share capital, future capital injections, or operating expenses of the newly formed company and the SOF of the business owner.

Conclusion

Preventing the misuse of a company for ML/FT purposes starts at its inception. It is crucial that CSPs effectively apply the measures set out in the regulatory requirements to ensure that they are not facilitating illegal activities. The review highlights the need for CSPs to improve their processes and procedures to identify shareholders and business owners, and to verify the legitimacy of funds being used.

Compliance Level

The compliance level for the value of share capital or assets of the company is as follows:

  • Non-compliant: 23%
  • Fully compliant: 0%
  • Moderately compliant: 77%

It is clear that there is a significant gap in the compliance level, and immediate action is required to address these concerns.