A subsidiary is a company that is controlled by another company, commonly referred to as the parent company. Control is typically established through the parent company owning more than 50% of the subsidiary’s voting shares, which gives it the power to influence or direct key decisions, including management appointments and business strategy. Subsidiaries can be wholly owned, where the parent owns 100% of the shares, or partially owned, with the parent holding a majority stake.

Understanding whether a company is a subsidiary is essential for accurately assessing its ownership and control structure for Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance. This helps determine who ultimately benefits from the business activities and whether any additional risks or regulatory obligations apply. For example, if a subsidiary operates in a high-risk jurisdiction or is linked to sanctioned individuals through its parent, this could impact its risk profile and Due Diligence (DD) requirements.

Identifying subsidiaries is also important when verifying group structures, mapping relationships between entities and tracing beneficial ownership. Financial institutions and other regulated entities are expected to consider the entire corporate group when conducting Customer Due Diligence (CDD), especially in complex structures where risk may be obscured by layers of ownership.