A person of significant control has direct or indirect influence on the running of a company; an ultimate beneficial owner has direct or indirect ownership of a company but doesn’t necessarily have influence over it.
Knowing who owns and controls any company that you do business with is vital for credit risk and anti-fraud processes’ as well as for uncovering any existing opportunities in your client book. In some cases, you are actually legally required to obtain and record UBO data.
Whilst these pieces of data are similar, they are distinct and can be radically different, especially in large businesses. That is why it is important you are aware of these differences and what your compliance requirements are regarding them.
Key Differences Between UBOs and PSCs
- Scope: UBOs are used in a global context, while PSCs are specific to the UK.
- Legal Basis: PSCs are defined by the UK Companies Act, whereas UBOs are a broader regulatory concept.
- Disclosure: UBO identification may not always be publicly required, but PSC details must be registered with Companies House.
What are Persons of Significant Control (PSC)?
A PSC is an individual that has control over the running of a company and its leadership. Often owners of a company will have a position of significant control, especially at SMEs, but they must own a sufficient amount of the company to qualify.
Companies often have more than one PSC, especially medium or larger companies, and the biggest can have dozens.
To classify as a PSC at least one of the following criteria must be met:
- Hold more than 25% of shares in a company
- Hold more than 25% of the voting rights
- Have the right to appoint or remove the majority of the company’s board
A PSC is capable of making fundamental decisions at a business and has significant influence, or complete control over, how it fundamentally runs and operates. Such as:
- Making changes to its business plan
- Changing how it operates
- Changing the nature of the business
- Changing the its goals
- Making borrowing decisions
- Appointing/firing the CEO (or equivalent position)
- Establishing or altering any profit-sharing, bonus, or other incentive schemes
All UK businesses are legally required to maintain a list of their PSCs and share this with Companies House. There is currently no legal requirement to investigate and record the PSCs of clients or suppliers but knowing and checking these individuals is a vital part of your risk processes.
What is an Ultimate Beneficial Owner (UBO)?
An UBO is an individual who ultimately benefits from a business or asset; or has effective control over it. In essence, when a company makes money/profit, the UBOs are the people who will ultimately receive it.
Significantly, UBOs will not necessarily be listed by name as one of the direct owners of a company. For example:
- Company A is owned by Company B
- Company B is not a person and can’t be a UBO
- Company B is 100% owned by Mrs Smith
- Mrs Smith is the UBO of both Company A and Company B
This is a simplified example and in reality these ownership structures can be highly complicated; especially when ownership is being deliberately obscured.
Any business affected by UK AML law are legally required to record and check all of their clients’ UBOs who have an ownership or voting rights equal to or above 25%.
This threshold is criticized for being too high and making it easy for bad actors to conceal their involvement with a company. This is especially true of criminal enterprises, where there are multiple perpetrators who can own 100% of a company collectively but easily remain invisible to standard UBO checks.
Not only does this fail to protect our economy from the effects of financial crime but it places your company’s, and your, reputation at risk if a criminal scheme is uncovered and you have been found to have inadvertently helped it.
To prevent this, Red Flag Alert provide UBO data from just 0.1% ownership. Giving you the full picture of who you’re doing business with.
We also present UBO and corporate group structures in a simplified and easy to understand manner, so you can understand these complex structures in seconds.
To find out more about how we will allow you to do smarter, safer, and faster business, talk to an expert today.
