The UK’s Registry of Beneficial Ownership

According to Baroness Neville-Rolfe, Parliamentary Under Secretary of State at the Department for Business, Innovation and Skills, the United Kingdom “is at the forefront of a dramatic increase in transparency about company ownership” in developed countries. However, it is the UK which is going to provide the testing ground for a registry of beneficial owners of companies, most of the information on which will be accessible by the public. This feature outlines the Government’s proposals for a BO registry.

Background

The need for increased corporate transparency was one of the main points agreed by the G8 at the Lough Erne Summit in Northern Ireland in June 2013, at which the issue of tax avoidance by companies and wealthy individuals was placed at the top of the agenda by the United Kingdom. As item three on the ten-point Lough Erne Declaration, endorsed by all participants, states: “Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.”

The G8 also adopted an Action Plan, which sets out “core principles that are fundamental to the transparency of ownership and control of companies and legal arrangements.” It argues that companies should obtain and hold information on their beneficial ownership, and that central registries containing these details should be set up at national or state levels. Likewise, trustees of express trusts ought to acquire such data, and financial institutions and designated non-financial businesses and professions, placed under effective obligations to identify and verify the beneficial ownership of their customers.

Immediately after the Lough Erne Summit, the G8 countries published their own action plans, outlining the legislative changes they intend to make to bring beneficial ownership registries into operation. At the behest of the UK, several offshore financial centers with constitutional links to Britain also published corporate transparency action plans, and consulted their businesses and citizens on the benefits and drawbacks of publicly available beneficial ownership information. However, most of these jurisdictions have rejected the need for change because, they argue, beneficial ownership information is already collected in one form or another, and it available to law enforcement authorities on request. They also fear that an uneven playing field would put them at a competitive disadvantage.

The principle of better corporate transparency was endorsed by the G20 at the St Petersburg summit in September 2013. The declaration issued at the conclusion of the summit stated:

“We encourage all countries to tackle the risks raised by opacity of legal persons and legal arrangements, and we commit to take measures to ensure that we meet the FATF standards regarding the identification of the beneficial owners of companies and other legal arrangements such as trusts that are also relevant for tax purposes. We will ensure that this information is available in a timely fashion to law enforcement, tax collection agencies and other relevant authorities in accordance with confidentiality legal requirements, for example through central registries or other appropriate mechanisms. We ask our Finance Ministers to update us by our next meeting on the steps taken to meet FATF standards regarding the beneficial ownership of companies and other legal arrangements such as trusts by G20 countries leading by example.”

At its November 2014 summit in Brisbane, the G20 endorsed the High-Level Principles on Beneficial Ownership Transparency drawn up by the G20 Anti-Corruption Working Group. This document consists of 10 core principles designed to improve the transparency of beneficial ownership of companies and trusts in G20 member countries, although the insistence that governments establish central registries of beneficial ownership was not one of them.

However, while the principle of transparency of beneficial ownership has been endorsed at G20 level, the UK is the only government, besides the EU, to put the idea into practice.

In July 2013, the UK Government published a discussion paper ‘Transparency and Trust: Enhancing the Transparency of UK Company Ownership and Increasing trust in UK Business’ which outlined a range of proposals that would set up the register and meet other G8 UK Action plan commitments. Then, in October 2013, Prime Minister David Cameron confirmed that the UK’s central register of company ownership would be made public. In October 2014, the Government published another discussion paper which proposed some of the detail that was needed to create the register, and in January 2015, further details about the register were announced to Parliament. Finally, the framework of a register of “persons with significant control” was included in the Small Business, Enterprise and Employment Act 2015 (SBEE Act), which received Royal Assent on March 26, 2015.

Aims of the PSC Register

While the SBEE Act outlines the new requirements, it is intended that specific details about the rules will be included in secondary legislation and regulations, the first batch of which was published for public comment in June 2015.

Putting the case of a PSC registry in the foreword to the document, Baroness Neville-Rolfe, Parliamentary Under Secretary of State at the Department for Business, Innovation and Skill, argued that: “Obscure company ownership structures can facilitate tax evasion, money laundering and even terrorist financing. Clamping down on these practices is an imperative of this Government.”

“In introducing this register, I believe we are helping the overwhelming majority of honest and fair-dealing companies by ensuring that the UK is recognized both nationally and globally as an up-front and open place to do business,” she stated.

Although Neville-Rolfe conceded that the central register of people with significant control “asks a lot of business” in terms of additional administrative responsibilities, she said that the final scheme strikes a balance between information that can be supplied quickly and without undue burden but that is still enlightening and meaningful.”

Who is a Person with Significant Control?

A person with significant control is defined in the SBEE Act as a person that meets one or more of the following conditions for a single company:

1. Directly or indirectly owns more than 25 percent of the shares in the company;
2. Directly or indirectly holds more than 25 percent of the voting rights in the company;
3. Directly or indirectly has the power to appoint or remove the majority of the board of directors of the company;
4. Otherwise has the right to exercise or actually exercises significant influence or control over the company.
5. The definition of this will be set out in statutory guidance.
6. Has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which in turn satisfies any of the first four conditions over the company.

What About Companies That Already Supply Beneficial Ownership Information?

Some companies in the UK already have to report a great deal of information about their ownership. Typically, these are companies listed on an authorized market in the UK of the European Economic Area. Rather than requiring these companies to provide information about their controlling owners in different formats to different authorities, the SBEE Act allows some companies to be exempted from the new requirements. Companies who are required to comply with Chapter 5 of the Financial Conduct Authority’s Disclosure Rules and Transparency Rules (DTR5 issuers) are exempted from having to keep a register of people with significant control.

What If The PSC Is Another Company?

The legislation defines entities that fulfil one of the conditions to be a PSC and that are required to hold a PSC register or disclose information as a DTR5 issuer (or otherwise) as “relevant legal entities.” However, regulations state that not all relevant legal entities should be recorded on the register.

The idea is that by not requiring all entities to look through their ownership chain in these circumstances it will be easier for an entity to maintain its own register, whilst still ensuring that information on all people with significant control will be available on the public register. The consultation document provides the following example to illustrate how this system might work in practice:

“Company A is fully owned by B and B is fully owned by C. B and C are both relevant legal entities (they both keep a PSC register) who own more than 25 percent of the share capital of A (B directly and C indirectly). To avoid the duplication of information on the register, in this example, company A would include only the first relevant legal entity (entity B) in its PSC register, and should not include entity C. Observers who wish to delve further may look at the PSC register of entity B and through that would identify C. In this case the first entity in the chain – entity B – is a registrable relevant legal entity. The other entity – entity C – is a non-registrable relevant legal entity and should not be included in the register of company A.”

What Information Will Be Held On the Register?

The details of people or entities that must be recorded include their name, residential address (which does not appear on any version of the register that the public see), a service address, date of birth (in the case of individuals), and information about how they have significant control.

Will There Be Any Exemptions?

Some people may feel that they or somebody they live with would be at serious risk of violence or intimidation due to the activities of a company they are involved with. Although a PSC’s residential address will not be on a public register, these people will be able to apply to Companies House to prevent their residential address from being disclosed to CRAs. Company directors are currently able to apply for this level of protection also.

What Are the Penalties for Failing to Comply with the New Measures?

If a company identifies a person or entity who should be on its PSC register, or who might have knowledge of such a person or entity, they may be required to contact them in order to obtain the details needed for the register. To ensure compliance, companies are able to freeze the interest of any individual or entity in that company if they do not respond to a notice.

If people or entities do not respond to the initial notice within one month the company may send them a warning notice. This will tell them that the company is proposing to issue them with a restrictions notice. The company may issue the restrictions notice if the initial notice has not been not complied with within one month of sending the warning notice, and if it has not received a valid reason for not complying.

The restrictions notice will freeze the person or entity’s interest in the company until the company obtains the information it needs and lifts the restrictions. While the shares or rights are frozen in this way, the holder of the interest will not be able to sell, transfer or receive any benefit from the rights, or exercise the rights attached to them.

Timeline

It is intended that companies will hold their own PSC register from January 2016. From April 2016 they will have to give this information to Companies House when they deliver their confirmation statement (which replaces the annual return). This means that Companies House will hold PSC information for all the UK’s companies in scope by April 2017. Companies House will make all the PSC information available for free in one central, searchable public register.