CBN Ultimate Beneficial Ownership Guidance: What Nigerian Financial Institutions Need to Know

Knowing the name of a company is not the same as knowing who ultimately owns or controls it.

Companies, partnerships, trusts and other legal arrangements can contain multiple layers of ownership, nominee relationships and intermediary entities. These structures are often entirely legitimate, but they can also be used to conceal the identity of individuals involved in money laundering, terrorist financing, corruption, sanctions evasion and other financial crimes.

For this reason, the Central Bank of Nigeria issued its Guidance on Ultimate Beneficial Owners of Legal Persons and Legal Arrangements in January 2023.

The Guidance applies to financial institutions under the regulatory supervision of the CBN and is intended to help them identify and verify the natural persons who ultimately own or control their corporate customers and other legal arrangements.

Beneficial ownership has subsequently become even more important within Nigeria's broader Customer Due Diligence framework, including through the CBN Customer Due Diligence Regulations 2023, which expressly address the identification and verification of directors and beneficial owners of legal persons and legal arrangements.

The CBN defines a beneficial owner as the natural person who ultimately owns or controls a customer, the natural person on whose behalf a transaction is conducted, or a person who otherwise exercises ultimate effective control over a legal person or legal arrangement.

The emphasis on the natural person is important.

The immediate shareholder of a company may itself be another company. That company may be owned by another entity, which in turn may be controlled by an individual.

The compliance team's job is therefore not necessarily finished when it identifies the first shareholder appearing on a corporate document.

The institution needs to understand the ownership and control structure sufficiently to determine which natural person or persons ultimately own or control the customer.

The CBN Guidance provides specific indicators for determining beneficial ownership.

A natural person may qualify as a beneficial owner where that person:

• directly or indirectly holds at least 5% of the issued shares in the legal person;

• directly or indirectly exercises at least 5% of the voting rights;

• has the right to appoint or remove a majority of directors or similar officeholders;

• exercises significant influence or control over the legal person;

• is the natural person on whose behalf a transaction is being conducted; or

• otherwise exercises ultimate effective control over the legal person or legal arrangement.

The 5% threshold is also reflected in Nigeria's Corporate Affairs Commission beneficial ownership framework. The CAC's Beneficial Ownership Register identifies a Person with Significant Control through criteria including at least 5% direct or indirect shareholding or voting rights, as well as other forms of significant influence or control.

This means beneficial ownership analysis should not be reduced to a simple percentage calculation.

A person may exercise effective control despite not appearing as the largest shareholder.

The CBN Guidance establishes a cascade approach for financial institutions identifying the beneficial owners of legal persons.

Step 1: Identify ownership-based control

The institution should first identify and verify the natural person or persons who ultimately exercise controlling ownership over the legal person.

This requires looking through intermediate corporate shareholders where necessary rather than stopping at the first layer of ownership.

Step 2: Identify control through other means

If no natural person can be identified through ownership, or if there is uncertainty about who actually exercises ownership control, the institution should identify natural persons exercising control through other means.

This may include individuals exercising significant influence over corporate decisions, voting arrangements or management despite not holding the relevant ownership interest directly.

Step 3: Identify senior management

Where no natural person can be identified through either ownership or other forms of control, the financial institution should identify and take reasonable steps to verify the relevant natural person occupying a senior management position.

This is a cascade, rather than a choice between three equivalent alternatives. An institution should not simply record a managing director as the beneficial owner because establishing the actual ownership structure is inconvenient.

Beneficial ownership requirements are not limited to companies.

For trusts and similar legal arrangements, financial institutions need to identify the relevant natural persons associated with the arrangement.

Depending on the structure, this may include:

• the settlor;

• the trustee or trustees;

• the protector, where applicable;

• the beneficiaries or class of beneficiaries; and

• any other natural person exercising ultimate effective control over the arrangement.

This has become increasingly important internationally. FATF strengthened its Recommendation 25 requirements for beneficial ownership and transparency of legal arrangements and issued updated risk-based guidance in March 2024.

Identifying a name supplied by the customer is not enough.

Financial institutions need to take reasonable measures to verify that the person identified is genuinely the beneficial owner.

The CBN Guidance identifies relevant sources including:

• certificate of incorporation;

• shareholder information;

• memorandum and articles of association;

• minutes and corporate resolutions;

• partnership agreements;

• annual returns and financial statements;

• bye-laws;

• public beneficial ownership records;

• information about the customer's governance and management arrangements; and

• other reliable independent sources.

The institution should also consider relationships such as nominee shareholders or directors, authorised signatories, persons holding powers of attorney, partners, trustees and other parties who may provide clues as to who actually exercises control.

Nigeria now has a publicly accessible Beneficial Ownership Register maintained by the Corporate Affairs Commission.

The register allows users to search for Persons with Significant Control associated with registered entities and provides information concerning shareholding, voting rights and control.

For financial institutions, this makes the CAC register an important source during KYB and beneficial ownership verification.

But the register should not necessarily be treated as the sole source of truth.

The CBN Guidance expects institutions to use information obtained through CDD alongside appropriate public and other sources, while FATF's updated beneficial ownership guidance supports a multi-pronged approach to establishing adequate, accurate and up-to-date beneficial ownership information.

This matters where:

• the customer provides information inconsistent with CAC records;

• the ownership chain involves foreign entities;

• nominees appear in the ownership structure;

• control is exercised without a straightforward shareholding relationship; or

• other information suggests that the person recorded as owner is acting for somebody else.

This is particularly important.

The CBN Guidance requires financial institutions to identify discrepancies between beneficial ownership information in their own records and information contained in the public register.

The Guidance requires those inconsistencies or discrepancies to be flagged and reported to the Corporate Affairs Commission.

A discrepancy should also prompt the institution to consider what it means for the customer's risk assessment.

An unexplained ownership inconsistency may be a simple administrative error. But depending on the facts, it may also indicate hidden control, nominee relationships, inaccurate customer information or an attempt to obscure ownership.

Not every corporate structure carries the same risk.

Financial institutions are expected to take a risk-based approach to beneficial ownership identification and verification.

Enhanced scrutiny may be appropriate where there are factors such as:

• complex or unnecessarily layered ownership structures;

• entities established in higher-risk jurisdictions;

• nominee directors or shareholders;

• unexplained ownership changes;

• trusts or other opaque arrangements;

• inconsistencies between different information sources;

• ownership through multiple jurisdictions;

• unusual relationships between shareholders and management;

• beneficial owners connected to higher-risk businesses or geographies; or

• other indicators suggesting that the ownership structure may be concealing the person exercising actual control.

The level of verification should therefore reflect the institution's assessment of the ML/TF/PF risk associated with the customer and ownership structure.

Identifying the ultimate beneficial owner is only part of the process.

Once the natural person has been identified, the institution needs to understand who that person is and what risk they present.

That should include appropriate screening for:

Politically Exposed Persons

Institutions need systems capable of identifying whether a beneficial owner is a PEP or falls within another relevant PEP relationship.

Where appropriate, PEP status can trigger enhanced due diligence and additional approval or monitoring requirements.

Sanctions and Watchlists

Beneficial owners should be screened against applicable sanctions, terrorism and other relevant watchlists.

A company that appears acceptable at entity level may still expose an institution to significant risk if an ultimate owner is a designated or otherwise prohibited person.

Adverse Media

Relevant negative information concerning fraud, corruption, financial crime or other serious misconduct may also affect the customer's risk assessment and the level of due diligence required.

The key principle is simple:

KYB should not stop at the company. The people behind the company matter too.

The CBN requires financial institutions to use information gathered through CDD and other sources to maintain their own register of beneficial owners for customers that are legal persons or legal arrangements.

The register should be reviewed periodically and updated at least annually or whenever relevant ownership information changes.

This means beneficial ownership should not be treated as a one-off onboarding exercise.

An ownership structure that was correct when the account was opened may be very different two years later.

Institutions therefore need mechanisms for identifying and responding to material changes in:

• shareholders;

• beneficial owners;

• directors;

• voting rights;

• control arrangements; and

• other relevant corporate information.

Financial institutions must retain beneficial ownership information obtained through CDD, together with relevant account files, business correspondence and analytical records, for at least five years after termination of the business relationship or after an occasional transaction, as applicable.

Institutions must also:

• keep the information accurate, relevant and up to date;

• provide beneficial ownership information to the CBN and other competent authorities when requested; and

• render periodic returns to the CBN containing prescribed beneficial ownership information.

A defensible beneficial ownership process therefore requires more than simply recording a UBO name in a KYC form.

The institution needs evidence showing how the ownership structure was established, which sources were used, what verification was performed and how the resulting risk decision was reached.

The international framework has evolved since the CBN issued its Guidance.

FATF strengthened Recommendation 24 on legal persons and subsequently published updated guidance in March 2023. Among other things, the strengthened framework emphasises access to adequate, accurate and up-to-date information about the true owners of companies and supports a multi-source approach to beneficial ownership information.

FATF also strengthened Recommendation 25 relating to trusts and other legal arrangements and published updated guidance in March 2024.

For Nigerian financial institutions, this reinforces the direction already established by the CBN: Beneficial ownership needs to be identified, verified, understood in context and kept current.

A good beneficial ownership process should enable a compliance team to answer several questions quickly:

• Who ultimately owns this company?
• How do we know?
• How many corporate layers did we have to look through?
• Who ultimately exercises control?
• Does our information agree with the CAC Beneficial Ownership Register?
• Are any directors, shareholders or ultimate beneficial owners sanctioned, politically exposed or otherwise high risk?
• Has the ownership structure changed since onboarding?
• Can we produce the supporting evidence if the CBN asks for it?

If answering those questions requires searching through multiple spreadsheets, manually drawing ownership diagrams or repeating separate screening requests for each shareholder, the problem is not merely efficiency.

It can become a CDD and financial-crime risk management weakness.

Regfyl brings KYB, beneficial ownership identification, screening and customer risk assessment into a connected onboarding process.

Recursive UBO Discovery

For corporate customers, Regfyl can identify directors, shareholders and beneficial owners through multiple levels of corporate ownership, rather than stopping when the immediate shareholder is another legal entity.

Regfyl currently supports identification of beneficial owners through up to eight ownership levels, helping compliance teams work through complex corporate structures.

CAC and Corporate Verification

Corporate information can be incorporated into the KYB process so that the institution can understand the registered entity, directors, shareholders and relevant ownership structure.

Screening the People Behind the Business

Identifying the UBO is not enough.

Regfyl enables associated parties to be screened for relevant sanctions, PEP and adverse-media exposure, helping the institution assess risk at both the company and individual level.

Risk-Based Onboarding

Beneficial ownership information becomes part of the customer's wider risk profile rather than remaining isolated in a corporate-document folder.

The results can feed into customer risk assessment, enhanced due diligence and subsequent monitoring.

Connected Investigation Records

The information collected during onboarding can subsequently be available during monitoring and investigations, giving investigators visibility into the customer's ownership and risk context rather than forcing them to reconstruct the relationship when an alert occurs.

This approach helps move beneficial ownership analysis from a manual documentation exercise to a connected part of the institution's financial-crime framework.

For complex corporate structures, identifying a company is the easy part.

The real question is whether your institution can reliably identify, verify and assess the natural persons who ultimately own or control it — and demonstrate that process to the regulator.

See how Regfyl can automate KYB, UBO discovery and screening across complex ownership structures.

See Regfyl Business Screening in Action