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What is an Ultimate Beneficial Owner (UBO)?

An ultimate beneficial owner (UBO) refers to the natural person who ultimately owns or exercises effective control over a company.

This individual may not necessarily be listed as a shareholder in official company records, especially when legal entities, nominee shareholders, or trusts are involved. According to the ÌìÃÀ´«Ã½ Action Task Force (FATF) and Hong Kong¡¯s Anti Money Laundering and Counter Terrorist Financing Ordinance (AMLO), a UBO typically meets one or more of the following criteria.

• A natural person who directly or indirectly holds more than 25% of the company¡¯s shareholding or voting rights.

• A person who has significant influence over key decisions, such as the ability to appoint or remove a majority of the board of directors.

• A natural person who exercises ultimate effective control through arrangements such as trusts, nominee structures, or contractual rights.

By definition, a UBO must be a natural person, meaning a ¡°living individual¡± in the biological sense, not a company, trust, or any other legal entity. Regulators require institutions to ¡°look through¡± complex ownership structures to identify the real individual who ultimately owns or controls the business.

The Difference Between Shareholders, Directors, and Ultimate Beneficial Owners

For example, in Hong Kong, Company A Limited is 100% owned by a British Virgin Islands (BVI) company called Company B Limited. Company B Limited is fully owned and controlled by Mr. Cheung. Although Company B Limited is the legal shareholder of Company A Limited, Mr. Cheung is the ultimate beneficial owner because he ultimately owns all the equity and holds effective control over the company.

Understanding who the UBO is helps financial institutions and regulators identify high-risk customers during account openings or compliance reviews. It is also a key requirement under Hong Kong¡¯s AMLO and supports greater transparency in corporate ownership structures.

Why Ultimate Beneficial Ownership Matters for Hong Kong Companies

Identifying ultimate beneficial owners is not just a bureaucratic requirement. It is a core step for Hong Kong businesses and financial institutions to comply with anti-money laundering laws and improve transparency in corporate ownership structures. The following are four key reasons why the UBO regime is essential:

Risk Management: Preventing Money Laundering and Terrorist Financing

Through in-depth due diligence, financial institutions and professional service providers can uncover beneficial ownership information and identify the individuals who ultimately control a company, even if hidden behind layers of legal entities. This helps stop the misuse of legal structures for money laundering or terrorist financing at the source. Institutions can also use the UBO¡¯s background, political exposure (PEP status), and adverse media records to assign risk ratings and enhance monitoring for high-risk customers.

Regulatory Compliance: Avoiding Penalties and Legal Consequences

Under Hong Kong¡¯s Companies Ordinance, all companies must maintain a Significant Controller Register (SCR) with up-to-date information about natural persons with substantial control. ÌìÃÀ´«Ã½ institutions must also verify UBOs as part of their onboarding and ongoing know your customer (KYC) process. The ÌìÃÀ´«Ã½ Action Task Force (FATF) further emphasizes that beneficial ownership information must be accurate and current. Non-compliance can result in fines, business restrictions, or even criminal liability.

Building Trust: Supporting Financing and Commercial Relationships

When a business has a clear and well-documented ownership structure, it makes account opening and loan approval processes smoother. Transparent beneficial ownership data also supports supply chain audits, ESG reporting, and investor due diligence. This builds stronger trust with banks, partners, and regulators.

Safeguarding Ownership Rights: Protecting the UBO

The UBO regime not only fulfills regulatory requirements but also protects the rights of the ultimate beneficial owner.

For instance, if a controlling person holds shares through nominee arrangements, offshore companies, or trusts without clearly disclosing their identity, they risk losing influence in shareholder disputes. There is also the risk that a nominee shareholder may improperly dispose of assets. In cases where a company bank account is frozen or closed, it may be difficult to prove who the true owner is.?

By proactively documenting and registering beneficial ownership, the UBO can demonstrate control and economic interest, helping ensure stronger protection in legal, financial, and operational matters.

Understanding Hong Kong's Legislation on UBO

In Hong Kong, identifying the ultimate beneficial owner is not only an internal compliance procedure. It is a legal obligation governed by two major pieces of legislation, the and the . Together, these laws form the backbone of Hong Kong¡¯s legal framework for preventing money laundering and terrorist financing, and align with international standards set by the ÌìÃÀ´«Ã½ Action Task Force (FATF).

Companies Ordinance

Since March 2018, all companies incorporated in Hong Kong (excluding listed companies) are required to maintain a Significant Controller Register (SCR), which records details of the individuals who hold substantial control over the legal entity.

Companies must take proactive steps to identify these persons and, within seven days of confirming their identities, issue a formal notice and complete the record within another seven days. The SCR must include the full name, identification number (such as a passport or Hong Kong ID), correspondence address, and the nature of ultimate effective control. This register must be kept at the company¡¯s registered office or a designated location and must be accessible to law enforcement authorities upon request.

Failure to maintain or update the SCR may lead to a fine of up to HKD 25,000, with additional daily penalties until the company becomes compliant.

Anti-Money Laundering and Counter-Terrorist Financing Ordinance

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) outlines additional responsibilities for financial institutions and designated non-financial businesses and professions (DNFBPs), such as accountants, lawyers, and trust or company service providers.

These entities must conduct customer due diligence and identify natural persons who ultimately own or control the company, even if they are hidden behind layers of legal entities. This is a critical step in preventing money laundering and terrorist financing, and aligns with FATF¡¯s guidance on collecting accurate beneficial ownership information.

UBO identification is required in circumstances such as:

• Establishing a new business relationship or handling large-value transactions

• When customer information is inconsistent or has changed

• When the customer is a politically exposed person (PEP) or poses a higher risk

All beneficial ownership information must be verified and retained for no less than five years. Non-compliance, including failure to perform due diligence or intentionally submitting false information, can result in a fine of up to HKD 1,000,000 or imprisonment for up to 7 years.

How ÌìÃÀ´«Ã½ Institutions Identify the Ultimate Beneficial Owner

In Hong Kong, financial institutions are required to conduct customer due diligence (CDD) when opening business accounts or establishing a business relationship. Identifying and verifying the ultimate beneficial owner (UBO) is a critical part of this process, ensuring compliance with anti-money laundering standards and protecting against misuse of legal entities.

Here is a typical process that financial institutions follow to determine ultimate beneficial ownership:

1. Collect Company Information: The institution requests updated business documentation, including company registration number, legal name, business address, articles of association, shareholder register, ownership structure chart, and a list of directors or senior management. This step helps verify the company¡¯s legal status and operational structure.

2. Review the Ownership Chains: The institution then examines the ownership structure in detail to identify any natural persons or legal entities that directly or indirectly own shares or exercise control. If offshore companies, trusts, or nominee arrangements are involved, a look-through approach is required to trace back to the natural person with ultimate effective control.

3. Identify and Verify UBOs: Based on the shareholding percentage and control arrangements, the institution determines who qualifies as a UBO. The identified individuals are then asked to submit supporting documents, such as passport copies and proof of address. The institution also screens these individuals against anti-money laundering watchlists and global sanctions databases.

4. Perform KYC and Risk Assessment: All identified UBOs must undergo standard Know Your Customer (KYC) and anti-money laundering (AML) checks. If the case involves politically exposed persons (PEPs), offshore holdings, or complex corporate structures, the institution may conduct enhanced due diligence. This includes assessing the UBO¡¯s background, verifying sources of funds, and obtaining approval from senior management before proceeding with the business relationship.

Which Organizations Have the Obligation to Identify the UBO?

In response to global efforts to combat money laundering and terrorist financing, a wide range of industries in Hong Kong are legally obligated to collect and verify ultimate beneficial ownership information. ÌìÃÀ´«Ã½ institutions and various professionals and regulated entities must follow due diligence guidelines when forming or maintaining a business relationship.

Common types of organizations required to identify UBOs include:

• Banks and financial institutions: Must identify and verify UBOs when opening accounts, issuing loans, or onboarding new clients.

• Securities firms and asset managers: Regulated under the Securities and Futures Commission (SFC), these firms must assess the background of investors, including who ultimately owns or controls the entity.

• Insurance providers and intermediaries: In cases involving policyholders with complex structures, insurers must determine the natural person with ultimate effective control or economic interest.

• Accounting and legal firms: When assisting with company formation or structuring trusts, these professionals are expected to trace and understand the beneficial ownership structure.

• Trust or company service providers (TCSPs): Firms offering incorporation or company secretarial services must conduct full customer due diligence, including UBO identification and verification.

Do You Need to Declare UBOs When Opening a Business Account in Hong Kong?

When opening a corporate bank account in Hong Kong, banks will require not only basic company registration documents but also complete ultimate beneficial ownership information. This usually includes identity documents, proof of address for each UBO, and a clear chart illustrating the ownership structure that reflects who ultimately owns or controls the company.

Banks often ask clients to complete a UBO declaration form that lists the individuals holding significant ownership or voting rights.?

For companies with more complex structures, such as multi-layered offshore holdings or trust arrangements, the bank may request supporting explanations and professional certifications from accountants or lawyers to verify the accuracy of the beneficial ownership information.

For example, even if you are the sole beneficial owner, but your company is held via nominee shareholders or foreign entities, the bank may still request detailed disclosures to trace back to the natural person in control. Business owners are advised to prepare the necessary documents in advance to avoid delays or rejection during the account opening process.

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Frequently Asked Questions About Ultimate Beneficial Owners

What Is the Difference Between a Company Owner and an Ultimate Beneficial Owner?

A company owner can be a legal shareholder listed on official records, and this entity may be a natural person, legal entity, or a nominee. An ultimate beneficial owner (UBO), however, refers specifically to the natural person who ultimately owns or exercises effective control over a company, whether directly or indirectly. In other words, even if someone is not listed as a shareholder, they may still be considered the UBO if they ultimately benefit from or control the business relationship.

Is UBO Registration Mandatory in Hong Kong?

Yes. Under the Companies Ordinance (Cap. 622), all Hong Kong-incorporated companies (except listed companies) have been required since 2018 to maintain a Significant Controllers Register (SCR). This register must record beneficial ownership information, including the name, identification, and nature of control of any individual who has ultimate beneficial ownership or control of the company.

What Is an Example of a UBO?

Consider this common structure: a Hong Kong company, Company A, is 100% owned by a British Virgin Islands (BVI) entity, Company B. Company B is fully owned and controlled by Mr. Chan, a natural person.

In this case, although Company B is the legal shareholder of Company A, Mr. Chan is the ultimate beneficial owner. He ultimately owns the company and exercises effective control, so financial institutions are required to identify him as the UBO by tracing through the legal entity structure.