When you confirm the related parties to include in a client's CDD, you choose a reason for each person. The reason records why that person is in scope, not their job title, and it forms part of the evidence behind your AML determination.
More than one reason can apply to the same person. Select everything that fits.
The quick rule
Authority to act is about who deals with your firm. Every other reason is about who owns or controls the client.
Each reason explained
Authority to act
The person deals with your firm on the client's behalf, whether or not they own any part of it. Choose it for whoever signs your engagement letter or gives you instructions, and for attorneys acting under a power of attorney and executors dealing with an estate.
Keep evidence of their authority, such as a board minute, a signed engagement letter or a power of attorney, in the supporting documentation area. HMRC treats a third party acting on a client's behalf as a risk factor in its own right, because it puts distance between your firm and the client.
Exercises significant influence or control
The person can direct the entity's affairs without meeting the 25% tests. Typical examples are a founder who has stepped back but whose sign-off is still needed, or someone whose recommendations the directors consistently follow.
Individual on whose behalf a transaction is being conducted
The person who actually benefits, where your client is acting for someone else. Choose it when the client is a nominee or agent, or where the money or assets involved belong to a third party.
Ownership – 25% or more
The person holds 25% or more of the shares or capital, either directly or through another company. This is the standard beneficial ownership test and will cover most people with significant control at Companies House.
Voting rights – 25% or more
The person holds 25% or more of the votes, which can differ from their shareholding. Choose it where there are different share classes, weighted voting, or a shareholders' agreement that changes who controls decisions.
Exercises ultimate control over management of the entity
The person runs the entity where nobody meets the ownership or voting tests. This covers the senior managing official you fall back to when no beneficial owner can be identified, and also partners in a partnership and senior officers of clubs, charities and similar bodies.
Benefits from the property of the entity
The person is entitled to the entity's income or assets. This mainly applies to trust beneficiaries and to members of unincorporated associations.
Other control
The catch-all for control that does not fit any of the above, such as veto rights, golden shares, or control exercised through a contract or a loan. Add a note explaining what the control is, because this option says little on its own.
Keeping your team consistent
These reasons follow the beneficial ownership tests in the Money Laundering Regulations 2017, with authority to act covering the separate requirement to identify and verify anyone acting on a customer's behalf. If two people in your firm would select different reasons for the same person, it is usually because one is thinking about the person's title and the other about their actual ownership or control. The reason should always describe the second.