What is the purpose behind the requirement to maintain ultimate beneficial ownership information by the companies?

The requirement to maintain UBO information is aimed at determining the true owners of a company. Under normal circumstances, a company’s corporate ownership structure comprises a few individuals or natural persons holding shares in the share capital of the company, called as shareholders or members. The particulars of such members are already required to be maintained in a ‘register of members’ under section 119 of the Companies Act, 2017. Detailed particulars to be maintained in the said register are specified in terms of regulation 19 of the Companies (General Provisions & Forms) Regulations, 2018 (the “Regulations”).

However, there might be certain cases where legal persons or corporate entities are appearing as members of the company in which case the required particulars as to the true owners, being the ultimate shareholders, would not be available. Information about the actual (ultimate) owners and shareholders is the most significant information for a large number of stakeholders of a company who may comprise creditors, tax authorities, corporate registry, major suppliers, major customers, financial institutions, etc.

For instance, a financial institution before establishing a banking relationship with a company would be interested in knowing the material particulars of a company including its shareholders, members and directors, as part of its KYC/CDD obligations. This information is obtained through the corporate registry in the form of statutory returns, financial statements and other documents of the company. However, in certain cases, the members appearing on the returns are themselves companies or other legal persons whose shareholders and members are not apparent from the said documents. In such a case, the financial institution would be interested in knowing the ultimate individual owners who are natural persons exercising the ownership and control rights, and enjoying the cash flow rights in the company with whom the financial institution is contemplating to establish a business relationship.

Accordingly, the State Bank of Pakistan, vide its BPRD Circular Letter no. 18 of 2018 issued on October 19, 2018, has required all the banks and DFIs to enhance their efforts to obtain relevant information with the objective to know the ultimate beneficial ownership of accounts/transactions. Vide the same circular letter, reference has been made to SECP’s Circular no. 16 of 2018 dated August 29, 2018 as available on SECP’s website at https://www.secp.gov.pk/laws/circulars/ through which SECP has directed all companies to enhance their efforts to obtain and maintain up-to-date ultimate beneficial ownership information.