Introduction

Regulations, like time, never stand still. This truism is most apparent when looking at the increasingly complex regulatory landscape for anti-money laundering (AML) and counter-terrorist financing (CTF). In the past year alone, we’ve witnessed significant regulatory shifts in the UK, coupled with damning reports from the Solicitors Regulation Authority (SRA) about the state of legal compliance, due diligence, and risk management in law firms across England & Wales. And, the growing pace and breadth of supervision is unlikely to change. 

On 26th October 2023 The Economic Crime and Corporate Transparency Act became law, giving the SRA the power to issue unlimited fines for economic crime offences alongside more powers to the Registrar of Companies House to become more active in preventing the creation of, and shutting down, fraudulent companies. 

It is clear that firms will continue to face ongoing challenges due to current world politics, strict regulations, the shift to digital business, and an increasingly impatient regulator. This is especially true when they are checking the background of corporate clients through 'Know Your Business' (KYB) procedures. The KYB check is no longer just a routine requirement; it has become a crucial and closely monitored defence against unintentionally supporting illegal activities.

But, where expanding watch lists and regulatory frameworks creates complexity, technology provides clarity. When it comes to corporate client due diligence (CDD), firms should be adopting technology that allows them to seamlessly onboard business clients — technology that allows lawyers and legal professionals to link ultimate beneficial owners (UBOs), directors and shareholders into a single, manageable, and monitored entity, with ongoing monitoring of company details, ownership structure, Politically Exposed Persons (PEPs), sanctions, and watchlist checks and instant access to UK and international company reports. 

In this guide we’ll explore how firms can:

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If you’d like to talk to one of our experts about KYB, or any of our other solutions, please reach out — we’d love to hear from you. 

Just like UFOs, beneficial owners are often shrouded in mystery and, less like UFOs, veiled by layers of corporate complexity. But, notwithstanding the difficulty of the task, the identification of UBOs is a critical component of KYB checks. For law firms, it goes far beyond regulatory formality. The identification of UBOs plays a crucial role in fortifying Anti-Money Laundering (AML) efforts, enhancing a lawyer’s understanding of corporate ownership, and offering firms a significant barrier to potential financial crime. 

So how can lawyers and their firms consistently identify UBOs to inform decisions, and stay on top of their regulatory responsibilities?

Step 1: Build on your understanding of UBOs

Start with a solid understanding of the MLR's definition of UBO, focusing on individuals who own or control corporate entities. From that solid foundation, firms should train their staff on how to unravel the layers of a corporate structure until they find an individual who is the UBO. 

This training might include case studies of complex ownership structures, workshops on tracing ownership chains, and guidance on interpreting shareholding and control information. For instance, if a client company is owned by another corporation, lawyers and legal professionals should be trained to probe further to find the individuals behind that corporation, understanding that ownership might be layered through several entities or obscured by legal arrangements like trusts or partnerships. This deep understanding is crucial for law firms to ensure they comply with AML regulations effectively.

Step 2: Sharpen your analysis of modern corporate structures 

Developing expertise in analysing complex networks of subsidiaries, trusts, and partnerships is a critical skill for legal professionals, particularly in this context. 

Use scenarios of intricate corporate structures of clients that have previously been onboarded enable you to practise understanding and tracing ownership layers. This can act as a useful training model for firms and lawyers looking to sharpen their analytical skills.

Step 3: Deal with inaccurate or insufficient information 

Companies may sometimes provide outdated or partial details about their ownership. For example, a company might only disclose a portion of its shareholders, omitting those who hold shares through complex arrangements like trusts or offshore entities. This can make it difficult to identify the real individuals in control, requiring additional investigation and verification. 

To address the challenge of dealing with inaccurate or insufficient information, firms can employ several technical investigative methods:

• Cross-referencing with multiple databases: utilise various databases such as Companies House, Land Registry, and international business registries to cross-check and verify ownership information.

• Enhanced due diligence research: conduct in-depth research including media searches, litigation checks, and reviewing financial statements to gain a more comprehensive understanding of a company's background and ownership.

• Interviews and direct enquiries: engage directly with the entity in question or relevant individuals for clarification and additional information.
• Utilising advanced legal research tools: employ legal research platforms that can aggregate and analyse data from a wide range of sources for more accurate insights into company ownership and operations.

By incorporating these methods, law firms can more effectively overcome the challenge of incomplete or inaccurate information, ensuring a thorough understanding of their clients' ownership structures.

Step 4: Maintain your regulatory adherence

Legal professionals must work in tandem with national standards and requirements, such as:

• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017:  The MLR 2017 sets out the additional obligations of  law firms working in areas of higher money laundering risk to stop criminals from using these services to launder their money. It requires firms to have measures in place to  identify their clients and monitor how they use their services.
• The Legal Sector Affinity Group (LSAG) Guidance:  The LSAG is made up of both regulatory and representative bodies for legal services in the UK. The LSAG guidance provides guidelines on AML regulations. This is official guidance and must be followed by firms supervised for AML in the UK.

In practice, this means regularly updating your internal compliance procedures, seeking out training on these standards.

Step 5. Conduct comprehensive risk assessments 

Conducting risk assessments and ensuring corporate CDD compliance requires a methodical approach to analysing various aspects of the corporate clients you and your firm deal with, from ownership structures to transactional patterns. 

Practically, from a CDD perspective this would mean ensuring the client validates your discovery to enable an accurate risk assessment — as inadequate discovery will result in an inadequate risk assessment.

Step 6. Automate manual KYB processes 

When we talk about smart KYB solutions there’s a misconception that technology is somehow replacing expert human judgement. In actuality, smart KYB solutions, like Legl KYB, are removing the manual processes that slow down your day-to-day, frustrate your clients, and leave your firm open to error and oversight.

Smart KYB solutions are capable of gathering and verifying vast amounts of data from multiple, global sources far more quickly and accurately than any human ever could — they are engines that vastly expedite your onboarding processes with real-time reporting and oversight that allows firms to maintain compliance with shifting regulatory standards and requirements 24 hours a day, 7 days a week.

If you’d like to talk to one of our experts about KYB, or any of our other solutions, please reach out — we’d love to hear from you. 

There’s no silver bullet to staying on top of compliance. The effective use of technology means you can devote less time on manual, laborious, often administrative tasks and more time focusing on your expert function, but even then, there’s a function to perform. 

Below are some of the steps we’d recommend any firm, lawyer, and legal professional consider as part of compliance good practice:

By taking these steps, you can contribute significantly to maintaining and enhancing compliance standards within your firm, but also leverage compliance as a strategic asset in your firm’s KYB processes.

If you’d like to talk to one of our experts about KYB, or any of our other solutions, please reach out — we’d love to hear from you. 

It may seem counterintuitive to talk about digital onboarding in a ‘guide to KYB’, but there’s serious logic to considering the efficacy of your firm’s digital onboarding when thinking about KYB.

Consider asking yourself the following questions about your existing KYB solution and tech stack: 

• Are you using different solutions for your CDD process? 
• Are you constantly switching between solutions? 
• Are these solutions integrated with your PCMS or CMS? 
• Are your solutions built for legal use-cases? 
• Do you have access to support? 
• Are you using what everyone else in your firm is using?  
  

As we all adapt to a constantly evolving technological landscape, alongside new ways of working, large tech stacks built on individual point solutions can fragment the onboarding experience for firms and their clients creating a frustrating labyrinth of technologies doing one thing relatively well, but failing to take account of the whole picture. 

For onboarding to work it has, like anything, to be practical, efficient and effective. . It must be built for purpose, seamlessly integrate with your PCMS or CMS, easy and compelling to use, and be capable of centralised management (not just for cost, but for compliance oversight and MLRO visibility). 

So what should lawyers and legal professionals look out for when prospecting or reviewing their existing corporate CDD solution?  

These guidelines are a baseline to help you and your firm make informed decisions about the quality, cost-effectiveness, and interconnectedness of your chosen or prospective KYB solutions. More than the experience of using these solutions, it’s about ensuring they meet regulatory requirements, enhance efficiency, and align with your specific needs and challenges.

If you’d like to talk to one of our experts about KYB, or any of our other solutions, please reach out — we’d love to hear from you.

To the diligent reader, there is one unifying recommendation in this guide — use technology to enhance your efficiency, streamline your processes, and optimise your compliance. While you may dismiss it as shameless marketing, the statement is true. 

Sophisticated platforms like Legl are capable of efficiently gathering, dissecting and analysing vast quantities of data from multiple sources — from surfacing PEPs and sanctions, to adverse media checks, and financial reporting — providing you with the data and tools necessary to conduct expert analysis alongside ongoing monitoring and firm wide oversight for MLROs. 

We’ll explore some key technological features powering solutions like Legl KYB, below:

Unravelling complex corporate structures with advanced technology

Combating fragmentation in digital onboarding

Ongoing monitoring and compliance control

The importance of expert supervision 

If the story of one lawyer’s overreliance on technology sends you running back to the pens, then take note — technology is only as good as the experts that operate it. Technology is a force-multiplier, not a force-replacement. Lawyers must apply their expertise to make informed decisions based on the comprehensive data and analysis provided and comply with regulatory standards. It is this symbiosis between technology and expertise that delivers efficient, optimised legal processes. 

If you’d like to talk to one of our experts about KYB, or any of our other solutions, please reach out — we’d love to hear from you. 

Everyone is being asked to do more with less. So we’ll keep our conclusion as brief and succinct as possible.

A platform like Legl can automate those manual, error-prone processes that detract from the expert practice of law. From solutions that help firms get paid faster, to KYC & AML checks and KYB, to AI-enhanced CDD — we are trusted by firms to increase revenue, drive efficiencies, improve compliance, and reduce lockup.

One platform tailored to your requirements

Contact us to book a demo or speak with one of our experts, and see firsthand how technology like Legl can transform your firm’s approach to KYB compliance.