Company Registries, RegTech Innovation and the Future of AML

Humans have been creating companies since ancient times, but business registries did not make an appearance on the global stage until the 19th century.

National institutions – keen to tax businesses among the rise of global trade and the advent of the industrial revolution – started introducing official lists of organisations operating in their specific jurisdiction and, as such, subject to their commercial laws and requirements.

As countries began to establish their own business registries, it became clear that not all societies agree on what a registry’s function should be, and – consequently – how it should be structured.

For societies that value corporate transparency, information about registered companies is not only comprehensive – including details on shareholders – but also easy to access and presented in a very clear way to any members of the public that wants to “look inside” a corporate structure.

On the other hand, when society conceives the register as the body able to give legal standing to a company and privacy traditions are deeply entrenched in local sensibilities, company information is not available for public access, and details about who is actually behind those registered companies are extremely limited.

Having identified both ends of the spectrum, it is important to keep in mind that most local registries stand somewhere in between, sometimes presenting seemingly opposing features as the result of many rounds of legislation and reforms over the years.

Jurisdictions such as Hong Kong, the UK, and Ireland have a similar approach. Here, data is presented as a series of official company documents filed by the registered entity upon incorporation and then subsequently at periodic intervals – such as annual returns - or when specific changes in the company structure occur – for instance, when new shares are issued, and the list of shareholders needs to be updated.

Countrie such as Singapore, Australia, Germany and France go a step further in making information available. Registered companies are required to file documents to certify their company structure and legal status and the registry will include this information in a standardised registry extract, updated daily. This is a document that summarises the current state of the company based on the most up-to-date filed information.

Finally, there are still numerous registries around the world where data can only be received and released in paper format. According to the International Business Registers Report 2019, Dominican Republic, Namibia and Suriname are some of the jurisdictions that fall under this category.

In recent times, demands for business registers to move further beyond their traditional role of registering corporate entities have emerged.

In certain jurisdictions information filed with the company registries has important legal implications. In Ireland, for example, a person effectively becomes a director of a local limited company only after the respective director change document has been published in the Irish company registry. In this case, simply signing the contract with the company doesn’t suffice, what really makes it official is the registry filing.

Another area where the role of company registries has become increasingly central is society’s fight against money laundering.

In the European Union, the fourth anti-money laundering directive (AMLD4) mandates the institution of public registries of beneficial owners to further increase transparency across the bloc. This provision requires organisations to provide information not simply about their shareholders, but to disclose the ultimate beneficial owners of their companies, wherever they might be located in the world. Many countries – including Germany - have chosen to implement this requirement not by adding a new feature to the existing company registry, but by creating a completely new Transparency Registry managed by a different institution.

In the last few years, Hong Kong has tightened its rules on corporate beneficial ownership, introducing a new requirement for all private companies to maintain up-to-date beneficial ownership information in a significant controllers register (SCR).

If we embrace the new vision of company registries as essential tools in the fight against money laundering, the ideal model to strive for becomes a fully centralised repository that can be electronically accessed and where all data is complete and properly structured, including information on shareholders and beneficial owners. Ideally, with such structured data registries could also utilise advanced technology such as machine learning to identify suspicious patterns.

Some registries are not that far away from this ideal model. In Denmark, for example, the register has started a machine learning lab to implement advanced data analysis and machine learning models into its IT systems, initially focused on preventing fraudulent business registrations.

Yet, while achieving such an ambitious vision will take time, the international financial system can already utilise company registries – even in their current multitude of formats – to protect itself against money laundering and terrorism financing by embracing RegTech innovation.

Financial institutions’ traditional approach to company verification - during the crucial phase of KYC and client onboarding and on an on-going basis during recertification - is essentially flawed.

Typically, financial institutions will either rely on static corporate data from third-party providers, or they will ask clients directly to present the required information and documentation. The former approach often results in inaccurate assessments based on out-of-date or never verified information. The latter increases the risk of fraud or – in the best case scenario – results in a time-consuming process that generates customer friction and is costly for financial institutions.

There are already RegTech solutions on the market that utilise a combination of natural language processing, optical character recognition and machine learning to automate access, retrieval and interpretation of company information from official registries to improve accuracy and efficiency of UBO and AML investigations.

These solutions can help established financial institutions and emerging FinTechs close the gap between stringent AML requirements imposed by regulators and the need to manage costs effectively. An intelligent use of automation and digitisation also enhances the overall user experience for corporate clients. With RegTech, corporate onboarding can evolve into a fast and seamless process closer to the experience that neo-banks have already imposed as the new standard for retail customers.

While we wait for the new generation of corporate registries to be introduced, RegTech innovation gives us a unique opportunity to strengthen the financial system’s defence against money laundering. But there is also another benefit that should not be underestimated: relying more on registries as they are today can teach us important lessons on how to build the multi-purpose, highly digitised company registry of tomorrow.