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Power Brokers Exposed: Who Really Controls Your Investments?
A recent investigation has shed light on the often-overlooked issue of who really holds the reins when it comes to collective investment schemes. The findings suggest that a select few individuals have significant control over these investments, potentially leading to abuse and manipulation.
Control and Beneficial Ownership
According to Article R. 561-2 of the Monetary and Financial Code, an individual or group of individuals is considered to be in control if they effectively determine the decisions made at general meetings or have the power to appoint or dismiss the majority of the administrative, management, or supervisory bodies.
In cases where no natural person can be identified as holding this level of control, obliged entities are allowed to identify a “beneficial owner of last resort.” This individual may be the legal representative of the collective investment scheme, such as the CEO or chairman, or someone who effectively manages the scheme.
Power Brokers
The investigation also highlighted instances where individuals or groups exercise power over these investments through means other than voting rights. These “power brokers” may not necessarily hold a majority stake in the company but still wield significant influence over its decision-making processes.
Identifying Beneficial Owners of Last Resort
In some cases, obliged entities may be able to identify a beneficial owner of last resort by looking to legal representatives of the collective investment scheme or those who effectively manage it. However, in other instances, this information may not be readily available, and obligated entities must rely on their own due diligence efforts to uncover potential control structures.
Importance of Due Diligence
The investigation emphasizes the importance of ensuring that client due diligence obligations are implemented, including identifying beneficial owners. This is particularly crucial for obliged entities operating within the framework of a trust or similar legal structure governed by foreign law.
Conclusion
As the financial landscape continues to evolve, it is essential for investors and regulators alike to remain vigilant in their efforts to uncover potential control structures and ensure that these investments are transparent and accountable.
Sources
- AMF Position - Recommendation – DOC-2019-16 – Guidelines on due diligence obligations with respect to clients and their beneficial owners
- Article R. 561-2 of the Monetary and Financial Code