News & Insights

Regulatory Investigation News: the Latest Changes in Compliance, Enforcement, and Beneficial Ownership

Over the last several months, there have been several major changes related to regulatory investigations, compliance and enforcement that will affect businesses and investors around the globe. Whether they result from changing government priorities or simply advancing a roadmap of changes that have been planned in the long term, staying informed about these changes pays off. In addition to helping your business remain compliant in the face of a regulatory commission investigation, staying abreast of these latest developments gives you a better idea of what information exists about other businesses, such as suppliers or potential merger and acquisition partners, in order to assess your risk.

What is Changing and Where?

Disclosure changes are happening in both the US and the EU. Some have to do with more traditional governance questions, specifically around tracking beneficial ownership and preventing money laundering. However, others relate to climate, sustainability, and the responsibilities of businesses to disclose their effects on the environment. The fact that these changes are happening in both the US and Europe reflects the global nature of business, and the changes themselves reflect the evolution of how businesses see risk and what information is important to know in order to assess that risk accurately.

Enhanced Corporate Ownership Registry

The Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, has been charged with building a new corporate ownership registry that tracks beneficial owners of anonymous shell companies. Under the Fiscal Year 2021 National Defense Authorization Act, FinCEN has been charged with implementing the Corporate Transparency Act (CTA), part of the Anti-Money Laundering Act of 2020 (AML Act). Key portions of this act mandate creating a confidential database and revising existing financial institution customer due diligence to take into account direct reporting of beneficial ownership information.

This is a still-evolving story, as the agency has a year to promulgate regulations and another two years to put them into effect, given the deadlines set by the bill. A public comment period on these new regulations was open from April 5, 2021 through May 5, 2021 and sought input about the procedures and standards, as well as implementation of related provisions.

European Beneficial Ownership Regulations

Focus on beneficial ownership is strengthening outside the United States, as well. In the spring of 2021, the EU is proposing its latest provision against money laundering. Elements of the EU’s 2021 Anti-Money Laundering (AML) package are expected to include a proposal to transfer parts of the existing directive to a regulation directly applicable in EU member states, including anti-money-laundering provisions related to obliged entities, beneficial ownership, and cooperation with financial intelligence units. The 2021 package is also expected to include an EU-level supervisory system, and a coordination and support mechanism for member states’ financial intelligence units.

The European Parliament also identifies further areas of AML regulations that it expects to consider in upcoming years. It plans to address enforcement of EU-level criminal provisions, as well as consider data sharing provisions associated with that enforcement. It also, as a follow-up on the 2020 AML action plan, plans to develop a methodology for identifying high-risk third countries (meaning countries that are neither EU members nor countries in the European Economic Area), and then issuing an updated list of such countries.

Enhanced SEC Focus on Climate Change

Under the Biden administration, the SEC has stated its intent to focus more strongly on climate risk disclosure. Earlier this year on February 24, acting SEC chair Allison Herren Lee directed the Division of Corporation Finance to “enhance its focus on climate-related disclosure in public company filings.” Lee’s statement noted that investors are increasing their focus on climate-related concerns when making investment decisions and underscored that investors should have access to that climate-related information when making their investment plans.

In response to Lee’s announcement, SEC Commissioners Hester M. Peirce and Elad L. Roisman issued on March 4, 2021 a clarification as to how they interpret “enhanced focus” on climate initiatives. Peirce and Roisman denote that this is a continuation of work that the SEC has been doing since 2010, and that the SEC “has not voted on any new standards or expectations related to climate-related disclosure.”

Despite their emphasis on the idea that nothing has yet changed as far as climate-related disclosures required of public companies, Peirce and Roisman do note that updates to the 2010 guidance are on the horizon, and point specifically to the creation of the Climate and ESG Task Force created under the Division of Enforcement. Its first focus is intended to be to “identify material gaps or misstatements in issuers’ disclosure of climate risks under existing rules,” as well as to “analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”

EU Regulation on Sustainability-Related Disclosures

Given the global nature of business, it is no surprise that the European Union is also making rules around environmental, social, and governance (ESG) matters. On March 10, 2021, EU Regulation 2019/2088 took effect, which requires asset managers and financial advisers to publish information about their policies on how they integrate sustainability risk into their advice, or disclose and explain why they deem sustainability risks not to be relevant.

Though it ties well into the rise of ethical investing, the rule does not apply only to advisors or products marketed as sustainable. Instead, it frames environmental factors as a material part of the overall determination of investment risk. The new rule is intended to help make it easier for investors to make informed decisions, and prevent advisors from giving a false impression of their concern for sustainability factors.

This is a still emerging story, as the EU will require further disclosures starting in early 2022. Disclosures expected to be required in the EU next year go deeper into the realm of ESG. They include disclosure of more involved information around content, methodologies, and adverse impact from an environmental perspective, but also disclosures related to social, human rights, corruption, and bribery questions.

Taking the Next Step – How are You Affected?

Following and understanding the latest developments and regulations is the first step toward remaining compliant with new reporting and investment regulations. The next step is finding out where your business stands. Your business needs to address the challenges of making sure your own reporting is accurate and fits the latest compliance requirements, and also needs to make sure that any due diligence being performed on partners or merger and acquisition prospects closely evaluates and determines if those companies are complying.

With the compliance and enforcement landscape changing day by day, you need a partner that will help your business stay informed, know your risk, and stay compliant with the regulations that matter to you. IntegrityRisk’s OwnerCheck can help your business meet a broad range of regulatory requirements that require knowledge of beneficial ownership and affiliated parties.

To learn more about IntegrityRisk’s offerings, and how they can help your business know its risk and compliance status, contact us today.