Why share classes are AML's hidden blind spot

In late 2024, Curve - the UK fintech promising to "simplify money" - found itself at the centre of a very different sort of complication.

When Lloyds Banking Group announced a £125 million acquisition, another story emerged later: one of share class manipulation, investor outrage and allegations that retail shareholders had been quietly stripped of rights they thought they owned.

For anti-money laundering teams, this isn't just a cautionary tale about investor relations. It's a masterclass in why beneficial ownership due diligence must look beyond simple percentage holdings to understand who actually controls a company.

What happened at Curve?

Curve's trajectory seemed straightforward enough. A fast-growing fintech with thousands of retail backers and a product that consolidated multiple payment cards into one. But across multiple funding rounds, the company restructured its capital table, introducing new share classes with different voting rights, liquidation preferences and economic outcomes.

The mechanics weren't unusual for venture-backed companies. The fallout was. According to reports from retail investors and crowdfunding platforms:

• Early shareholders claimed they weren't adequately informed about how restructuring would affect their holdings
• Voting rights and liquidation preferences were allegedly diluted without clear consent
• The complexity of multiple share classes made it difficult for non-institutional investors to understand their true position
• By the time the Lloyds deal was announced, these structures largely determined who would benefit from the exit and who would see minimal returns

While Curve's share class restructuring wasn't illegal, the dispute highlights a critical compliance vulnerability: when ownership structures become too complex to track, they create blind spots that AML teams cannot afford to miss.

Why AML teams should care about share classes

Under the Money Laundering Regulations 2017 and similar frameworks globally, regulated firms must identify and verify beneficial owners - the individuals who ultimately own or control a company. The standard threshold is 25% ownership or control.

But here's the problem: control isn't always proportional to shareholding percentage.

In entities with complex capital structures, control flows through voting rights, board appointment powers, veto rights and preference structures that can concentrate authority in unexpected hands.

A simple illustration

Consider this scenario:

• Jane owns 10% of Company X, all in Class A shares with full voting rights and board appointment powers
• Tom owns 90% of Company X, but his Class B shares carry no voting rights and rank behind Class A in liquidation

From a pure ownership perspective, Tom is the obvious beneficial owner. But from a control perspective, Jane may be equally or more important. She can determine company direction, approve transactions and appoint directors - all hallmarks of beneficial ownership under AML regulations.

If your due diligence stops at "Tom owns 90%," you've missed a critical controller.

The compliance risks are real

When AML teams don't account for share class complexity, several risks emerge:

1. Misidentifying Ultimate Beneficial Owners
   Public registries like Companies House show shareholding percentages but rarely detail the rights attached to each class. If you rely solely on these sources, you might identify someone with 30% of shares as a UBO while missing the individual with 5% of preference shares who holds veto power over major decisions.
2. Missing hidden control structures
   Share classes can create control mechanisms that operate independently of ownership percentage:
   1. The founder shares with 10x voting rights
   2. Golden shares with veto powers over specific decisions
   3. Preference shares with board appointment rights
   4. Ratchet provisions that shift control upon certain triggers
      
      These structures are common in venture capital, private equity and restructurings - exactly the scenarios where AML risks may be elevated.
3. Overlooking post-transaction shifts
   The Curve case demonstrates how ownership structures can shift repeatedly. Each funding round, each restructuring and each new share class issuance potentially changes who controls the entity. Without ongoing monitoring of these changes, your beneficial ownership records become outdated the moment a new term sheet is signed.
4. Underestimating exposure after dilution
   When companies raise capital and dilute existing shareholders below 25%, it can appear that there are no beneficial owners to identify. But if dilution happens through preferred shares while founders retain super-voting common stock, control hasn't actually changed - only the appearance of it has.

What AML teams should do differently

The share class problem requires a fundamental shift in how we approach beneficial ownership verification, particularly for complex or high-risk entities.

During onboarding

Request constitutional documents

Don't settle for shareholder lists. Obtain articles of association, shareholders' agreements and any documents that detail the rights attached to each share class. These reveal who actually controls what.

Map control separately from ownership

Create a control matrix that captures:

• Voting rights by share class
• Board appointment powers
• Veto or consent rights
• Liquidation preferences
• Conversion or ratchet mechanisms

Ask direct questions

When dealing with entities that have multiple share classes, ask:

• "Which shareholders can appoint or remove directors?"
• "Do any shareholders have veto rights over major decisions?"
• "Are there any shares with enhanced or limited voting rights?"
• "Have there been any recent restructurings that affected shareholder rights?"

Don't assume registry accuracy

Public registries are a starting point, not the finish line. They typically don't capture the nuances of control embedded in share class structures.

During ongoing monitoring

Watch for red flags

• Multiple rounds of funding in short succession
• Introduction of new share classes without clear commercial rationale
• Opaque or incomplete disclosure about shareholder rights
• Discrepancies between stated ownership and apparent control
• Restructurings that occur shortly before major transactions

Trigger enhanced due diligence

When you spot these patterns, escalate to enhanced measures. This might include:

• Legal opinions on control structures
• Direct engagement with the company's legal counsel
• Third-party corporate intelligence reports
• Review of board minutes or shareholder resolutions

Update beneficial ownership records

Share class restructurings should trigger a refresh of your beneficial ownership analysis, not just when shareholders cross the 25% threshold but whenever control mechanisms change.

The broader lesson

Curve didn't set out to create an AML compliance challenge. But its capital structure evolution demonstrates how quickly ownership clarity can erode, and how significant the consequences become when it does.

For AML professionals, the message is clear: in an era of complex ownership structures, percentage holdings alone don't tell the full story. Control can be engineered, concealed and shifted through mechanisms that won't appear on a Companies House filing or a basic KYC check.

The question isn't whether your clients have complex share structures - many legitimate businesses do. The question is whether your due diligence is sophisticated enough to see through them.