The need for regular filings with regulatory and government authorities is a no-brainer in the corporate world: Of course, you will need to keep authorities abreast of your operations and how the company is set up, especially in a world of increasing regulation and a growing cry for corporate transparency.

But that need doesn’t mean any old entity data will do. Far from it, actually – as the regulators close in on transparency, there is an increasing amount of legislation and number of official bodies who want to get ahold of entity data. If this entity data is out of date, inaccurate or flawed in any way, those regulators have increasing power to prosecute entities for non-compliance, which can, in turn, result in fines, reputational damage or jail time for directors. Good organizational governance has never been more important.

Let’s take a look at just three of the global regulations that demand accurate entity data to ensure compliance: Know Your Client (KYC), Anti-Money Laundering (AML) and the powers of the U.S.’s FinCEN body.

Digging Into Data Can Help You Know Your Client

Organizations are under increasing regulatory pressure to identify, analyze and understand with whom, exactly, they are doing business. It’s designed to guard against white-collar crimes such as money laundering, corruption and fraud. This means that entities must keep up-to-date information about all directors on file in an easily accessible manner for those times when KYC processes kick in.

What’s the Requirement?

While exact requirements will depend on the jurisdiction in which you’re operating, in general the Know Your Client (sometimes, Know Your Customer), or KYC, standard is there to ensure that investors or sellers know detailed information about the client.

It’s an ethical requirement for those who are dealing with customers during the opening and maintaining of accounts, according to Investopedia, and is based around two rules implemented in July 2012: The Financial Industry Regulatory Authority (FINRA) Rule 2090 (Know Your Customer) and FINRA Rule 2111 (Suitability). The requirement is to know and keep records on the essential facts of each customer, as well as identifying each person who has an authority to act on the customer’s behalf. Generally, this means having a name, residential address, date of birth and a photograph on an official document, such as a passport, confirming the person’s identity.

How Does Accurate Entity Data Ensure Compliance?

Accurate entity data is essential for a KYC process. If the entity in question is purchasing products or services, especially financial products or services, it will need to supply information about the entity, the directors of that entity, and usually the ultimate beneficial owner status, too. Providing incorrect or incomplete entity data during KYC can result in the entity not passing KYC checks or due diligence processes – the institution won’t be able to verify that the customer (that is, the director or responsible manager) is who they say they are, and the entity may lose its credit line. Having that up-to-date and accurate entity data, then, helps to ensure that the entity can continue to procure financial services and to operate in good standing.

Anti-Money Laundering Regulation Demands Strong Recordkeeping

KYC checks are largely done to help compliance with anti-money laundering, or AML, regulations. In the European Union (EU), AML regulation is covered by various Anti-Money Laundering Directives, the fifth of which was published in May 2018 and is being transposed into legislation across the EU.

What’s the Requirement?

Businesses have obligations to meet certain day-to-day responsibilities if covered by these regulations, including carrying out those customer due diligence checks and risk-assessing the business. This is done to help fight money laundering and counterterrorist financing, in turn contributing to global security, the integrity of the financial system and sustainable growth.

In the U.K., according to the HMRC, these checks must be carried out when:

  • You establish a business relationship with a new customer
  • You suspect money laundering or terrorist financing
  • You have doubts about a customer’s previously supplied identification information
  • Customer circumstances change
  • Deals are of a certain value

How Does Accurate Entity Data Ensure Compliance?

As with KYC, compliance with AML legislation around the world is key to ensuring good standing. It’s essential that entity data and information on directors and beneficial owners is kept up to date and accurate. Failing to pass KYC or AML checks can result in penalties by the Financial Conduct Authority (FCA), including fines or even criminal prosecution. Entities also risk damage to their reputation, which can have a flow-on effect right up to the parent company in cases of a large group of entities.

Using Entity Data to Stay on the Right Side of FinCEN

FinCEN, the U.S. Financial Crimes Enforcement Network, is a bureau of the U.S. Department of the Treasury. Its mission is “to safeguard the financial system from illicit use, combat money laundering and promote national security through the collection, analysis and dissemination of financial intelligence and strategic use of financial authorities.”

What’s the Requirement?

In some regards, the end goal here is similar to that with the E.U.’s AML directives: Keep information up to date and be ready to supply it when asked. FinCEN’s mission is built around financial intelligence, and it supports local, state, federal and international law enforcement investigations. So, while there’s no single requirement or piece of legislation to point to as the key for compliance, the essential need here is to keep entity data up to date and accurate because you could be asked for any data at any time.

How Does Accurate Entity Data Ensure Compliance?

As a federal body, FinCEN has far-reaching powers and can prosecute under the Bank Secrecy Act (BSA). The data it collects helps investigators to connect the dots by allowing more complete identification of subjects. Having an up-to-date and complete corporate record, and transparent entity data, will ensure that any FinCEN requirements are handled swiftly, efficiently and accurately. Not having that accurate entity data can risk FinCEN assuming something is being hidden, or can result in lengthy and costly investigations that will prove a burden on the general counsel and legal operations teams.

Harnessing Entity Management Software Can Help Ensure Compliance

These are just three examples; the global world of regulation is full of similar stories, with each new piece of legislation – from MiFID to CRS and more – requiring slightly different entity data in slightly different formats in order to remain compliant. Whether you’re operating with multiple subsidiaries across the world, or you’re a single-state operation, having access to clear and complete entity data remains essential to ensuring compliance and remaining in good standing.

But how do you ensure that clear and complete entity data is both accurate and up to date? The answer is simple: You need a single source of truth for all entity data. Especially when dealing with multiple subsidiaries in a large group, the collection and storing of entity data can get overwhelming and messy; there can be multiple systems and processes in place and often no real standardized way to deal with governance and compliance.

Establishing a single source of truth for all entity data helps to battle the issues around version control, simultaneously ensuring that those needing entity data for a filing are accessing the most recent information available – essential if a director changed recently, for example. And establishing that single source of truth in a cloud-based platform ensures that anyone can access the entity data from anywhere at any time, helping to relieve the burden of information requests from the general counsel and the legal operations teams.

Entity management software, such as Diligent’s, establishes that single source of truth and helps to streamline compliance operations. It can help organizations to centralize, manage and effectively structure their corporate record to improve entity governance, which, in turn, can better ensure compliance, mitigate risk and improve decision-making. Entity management software provides a central repository to store entity data in a highly secure format to create that all-important single source of truth, while also managing the ongoing accuracy of the corporate record using compliance calendars, reminders and workflows for better data.

Get in touch and schedule a demo to learn how entity management software can help you protect the integrity of your entity data – and to surface the right information to the right people at the right time – all of which helps to ensure compliance.