By Johan Prinsloo, Head of Governance Support at Sanlam Corporate.
In today’s regulatory landscape, transparency in ownership structures is not just a best practice – it’s a legal requirement. The Financial Intelligence Centre (FIC) has issued Public Compliance Communication 59 (PCC 59) to provide clarity on how accountable institutions, like Sanlam, must identify and verify the Ultimate Beneficial Owners (UBOs) and those who exercise control over legal entities. This guidance is crucial in the fight against financial crime, including money laundering and terrorist financing.
What is an Ultimate Beneficial Owner (UBO)?
According to PCC 59, a beneficial owner is a natural person who directly or indirectly:
- Ultimately owns (5% or more) or exercises effective control over a corporate client of Sanlam.
- Owns or controls a legal person, partnership, or trust that itself owns or controls a client.
- Exercises control over a client with whom Sanlam establishes a business relationship.
Examples of ownership structures:
| Simple, Direct Shareholding
Natural Person 1 (58%) and Natural Person 2 (38%) are identified as the sole direct beneficial owners of the Legal Entity, assuming they are not nominal owners, and no other individuals possess indirect influence over the company’s activities. Natural Person 3 (4%) is not an ultimate beneficial owner as their share of ownership is below 5%. |
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| Multi-Level Indirect Shareholding
Natural Person 1 owns shares indirectly through Legal Entity 2 (60% x 60% = 36%). Natural Person 2 owns shares indirectly through Legal Entity 2 and Legal Entity 3 Based on the above both Natural Person’s 1 and 2 are ultimate beneficial owners of Legal Entity 1, assuming that they are not nominal owners, and no other individuals possess indirect influence over the company’s activities. |
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| Combination of Direct and Multi-Level Indirect Shareholding
Natural Person 1 owns shares directly and indirectly through Legal Entity 2 and Legal Entity 3 [4% + (96% x 60% = 57.6%) = 61.6%]. Natural Person 2 [(96% x 40%) x 10% = 3.8%] is not an ultimate beneficial owner as their share of ownership is below 5%. Natural Person 3 owns shares indirectly through Legal Entity 2 and Legal Entity 4 [(96% x 40%) x 90% = 24%]. Based on the above both Natural Person’s 1 and 3 are ultimate beneficial owners, assuming that they are not nominal owners, and no other individuals possess indirect influence over the company’s activities. |
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The 5% Threshold
In our previous newsletter, we highlighted a key regulatory change: the reduction of the ownership threshold from 25% to 5%. This means that any natural person holding 5% or more of ownership interest in a legal entity is considered as a UBO in the customer due diligence process.
This adjustment brings South Africa in line with global best practices and is a strategic move to strengthen the financial system against abuse. By lowering the threshold, authorities aim to close loopholes that previously allowed individuals to obscure their involvement by spreading ownership across multiple entities.
What does “Control” really mean in Customer Due Diligence?
When it comes to identifying Ultimate Beneficial Owners (UBOs), control goes beyond just shareholding. PCC 59 outlines three distinct tiers of control that financial institutions must consider:
- Ownership-Based Control: Individuals who hold 5% or more of shares or voting rights.
- Control Through Other Means: This includes powers granted via nominee arrangements, powers of attorney, informal agreements, or other mechanisms that allow a person to influence decisions.
- Control Over Management: If no UBO can be identified through ownership or other means, institutions must identify individuals who exercise direct control over the management of the entity—such as directors or executive officers.
Why This Matters to You
As a corporate client, ensuring transparency in your institution’s ownership and control structures is not just a regulatory requirement, it’s a key part of building trust and maintaining compliance.
This includes:
- Maintaining up-to-date records of all shareholders and individuals who influence decision-making.
- Providing documentation such as share certificates, organograms, trust deeds, or shareholder agreements.
Clear and accurate documentation helps financial institutions identify Ultimate Beneficial Owners (UBO’s) and assess risk appropriately. It also ensures a smoother onboarding process and ongoing compliance reviews. Compliance Is not Optional
By proactively identifying and verifying your Ultimate Beneficial Owners (UBOs), your business demonstrates a strong commitment to transparency and good governance. It also ensures compliance with Section 21B of the FIC Act.
Sanlam is committed to helping you navigate these requirements. For further guidance or assistance please contact your relationship manager.