FATF and beneficial ownership. How LEIs help

Beneficial ownership transparency is a cornerstone of FATF’s efforts to support anti-money laundering (AML) counter-terrorist financing (CTF) efforts. FATF Recommendation 24 specifically focuses on ensuring that accurate and up-to-date information on the ownership and control of legal entities is available to authorities. However, for compliance teams, identifying beneficial owners across borders and through complex legal structures remains a significant challenge. The LEI is a powerful tool in helping to address these issues.

 

The purpose of Recommendation 24

Under the FATF Recommendations, “beneficial ownership” means the natural person (or people) who ultimately own or control a legal entity, even if that control is exercised indirectly through layers of companies, trusts, nominees or other means.

Recommendation 24 calls on jurisdictions to ensure that authorities can access reliable beneficial ownership data. It addresses legal persons such as corporations, foundations, and partnerships, and aims to:

  • Prevent misuse of legal entities for money laundering or terrorist financing
  • Ensure transparency of ownership and control structures
  • Promote consistency in beneficial ownership data collection

The 2022 update to Recommendation 24 raised the bar, requiring use of central registry data, increased verification, and clearer obligations for both companies and service providers.

 

The challenge of reporting beneficial ownership

In practice, beneficial ownership reporting is often fragmented and manual. Common difficulties include:

  • Shell structures obscuring true ownership
  • Inconsistent data formats across jurisdictions
  • Opaque offshore holding companies
  • Limited, non-standardised verification of submitted ownership information

These issues make it difficult for financial institutions to validate who really owns or controls a client entity. As a result, the risk of non-compliance with regulatory requirements is raised during audits.

 

How the LEI enhances beneficial ownership transparency

The Legal Entity Identifier supports Recommendation 24 compliance in several ways:

  1. Verified Legal Entity data: LEIs include information on a legal entity’s name, location, legal form, and registration authority, providing a reliable starting point for ownership research.
  2. Relationship data (Level 2): the Global LEI System (GLEIS) includes Level 2 data, which maps parent-child relationships between legal entities. This helps firms:
  • Trace ownership hierarchies
  • Understand controlling interests
  • Conduct group-wide risk assessments
  1. Publicly accessible and globally standardised: all LEI data is freely available and maintained in a standard format across all jurisdictions, making it easy to integrate into compliance platforms.

 

Real-world examples

Real-world examples for use of LEIs in helping with FATF compliance include:

Corporate banking:
Banks use LEIs to uncover beneficial ownership in group structures across multiple jurisdictions, enhancing due diligence accuracy of business clients.

Regulatory reporting:
Supervisory bodies require LEIs in filings to identify and trace ownership of regulated entities.

Trade finance:
LEIs reduce fraud risk by making it easier to trace the beneficial owners of suppliers and counterparties.

 

Why LEIs complement Central Registries

Central registries are key to Recommendation 24 compliance, but they vary widely in quality, accessibility, and scope. LEIs help by:

  • Providing a global layer of verification
  • Offering consistent, real-time access to relationship data
  • Bridging gaps between local registries and international operations

 

Implementation steps

Benefiting from LEI transparency can be a relatively straightforward initiative for any organisation. Steps to implementation include:

  1. Encourage customers to obtain and maintain an LEI
  2. Use LEI reference data to map entity group structures
  3. Embed LEI checks in KYB and risk workflows
  4. Monitor for changes in LEI relationship data

Organisations can achiev step 1 by referring clients to a GLEIF-accredited LEI Issuer like RapidLEI, or alternatively and in order to ensure FART is met, consider registering LEIs on behalf of clients via RapidLEI’s partner programme.

 

Conclusion

Beneficial ownership verification is no longer optional. As FATF and national regulators sharpen their focus, firms must adapt. The LEI offers a globally stanardised, regulated, cost-effective, scalable way to improve transparency, meet regulatory expectations, and reduce KYB friction, particularly for complex or cross-border clients.

Talk to RapidLEI today to start using LEIs to enhance your organisation’s beneficial ownership transparency and insights.

Next in the series: The Role of LEI in Crypto and VASP Compliance