The use of beneficial ownership data by private entities

Summary

Regulations that govern the disclosure and use of information about who owns and controls companies have been growing in recent years as part of many governments’ anti-money laundering (AML) and countering the financing of terrorism (CFT) efforts. Regulators and civil society have advocated for beneficial ownership transparency (BOT) for many additional reasons, including assistance with anti-corruption efforts, providing a better understanding of wealth ownership and concentration, and even improving human rights and modern slavery due diligence in supply chains. Beneficial ownership (BO) data is held by companies and provided by private, third-party suppliers. Increasingly, it is also collected and published by governments.

Open Ownership (OO) commissioned Cognitiks to conduct research during 2020-2021 to answer the following questions about private sector actors’ use of BO data:

• Which entities within the private sector currently use BO data?
• What are the different use cases for BO data amongst private entities?
• What are the primary drivers behind the use of BO data by private entities?
• What kinds of challenges do private entities have related to the use of BO data?
• What kinds of trends or emerging issues might shape private sector use of BO data in the future?

Answering these questions will help to inform whether and how governments can collect and publish BO data to common, transparent standards, in ways that are useful for the private sector. The research team conducted surveys with representatives of companies from three groups of private sector actors:

1. BO data service providers
2. Companies that are end consumers of BO data for internal business processes[1]
3. Companies investing in these industries

Follow up telephone interviews were then conducted with selected research participants. Finally, primary research was conducted to assess several BO data providers’ services to supplement the findings.

Findings

The research found that of the private entities surveyed, the biggest driver of BO data use is compliance with government regulations. However, data availability and quality is a significant challenge. Private BO data service providers are the main source of BO data for these companies. In turn, government registers are the primary source of BO data for the surveyed providers, but availability is limited. Where data is available from government registers, it is often unreliable, incomplete, and not readily interoperable. Furthermore, challenges in using BO data constrict the potential for businesses to unlock BO data’s full potential in areas beyond compliance. These include managing operational and reputational risk, supply chain management, and compliance with voluntary reporting frameworks such as environmental, social, and governance (ESG) standards.

Currently, shortcomings in the data are being addressed through costly and highly time-consuming, sometimes manual, processes. Whilst technical approaches may alleviate this burden somewhat, these may not necessarily be available to all companies, and improving the availability, accuracy, and reliability of the base level of data ingested may help reduce compliance costs, even when best-effort verification requirements for AML/CFT regulated entities remain.

Whilst BO data providers add genuine value, in many cases their resources are largely spent on addressing basic issues which government registers could address. The better structured the data these companies can ingest, the more they can target human and financial resources at more complex aspects of open source research and at adding additional value to BO data for their clients, to further extend its use.

Considerations

Based on the findings, the research concludes that standardisation around definitions, structure, verification, and quality of the data in government registers is lacking. Governments are best placed to address these challenges and to collect, verify, and publish BO data, and should do so to facilitate private sector compliance with regulations and unlock additional benefits of BO data use by the private sector. In light of these findings:

Governments should consider:

• implementing public BO registers in a way that is useful for the private sector by using standardised definitions, providing BO data in structured formats, and undertaking verification to deliver high quality data;
• following the Open Ownership Principles for effective beneficial ownership disclosure (OO Principles) as they implement reforms;[2] and
• consulting financial institutions to improve verification processes of data in registers.

Private sector actors should consider:

• harmonising BO data use within organisations to improve usability;
• lobbying governments and non-governmental regulators to resolve issues around data availability and quality identified in this research by advocating for open data with consistent standards; and
• playing an active role in data verification through discrepancy reporting and developing and proposing innovations for governments towards verification of data.

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