Transparency registers: The next set of changes
The summer of 2017 will bring about three notable changes to the UK Government's transparency registers initiative: 1. UK implementation of the Fourth EU Anti-Money Laundering Directive; 2. other changes to the PSC registers regime; and 3. a legislative proposal for PSC for property.
UK implementation of the Fourth EU Anti-Money Laundering Directive
It is only just over one year since the PSC registers regime came into force – and it is now being changed. The good news is that the UK Government is using the architecture of the PSC registers regime to implement the Fourth EU Anti-Money Laundering Directive (EU 2015/849) (which must be brought into national law on 26 June 2017) (AMLDIV). The less good news is that the UK Government does not seem to be properly implementing that Directive.
The problem arises because people with significant control (the PSC registers requirement) are not the same as ultimate beneficial owners (the Directive requirement). At the time that the PSC registers regime was being developed, the UK Government was very clear that the test it was seeking to apply was deliberately different from the test for beneficial owners. However, now our Government seems to have dangerously confused the two.
HM Treasury was the relevant government department responsible for negotiating the detail of AMLDIV. In brief, HM Treasury negotiated badly and the definition of beneficial owner in AMLDIV is both utterly verbose and wholly confusing and inadequate.
How is the UK implementing AMLDIV
The UK implementation is contained in The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which will entirely replace the current Money Laundering Regulations 2007. The UK Government claims that these new measures will increase the transparency of who owns and controls companies in the UK. What is certain is that companies need to be more alert as to changes in its superior ownership structure, which are sometimes difficult to track.
The UK Government is effectively treating PSC information as if it were beneficial ownership information. This is not correct and will lead to confusion as it will not satisfy customer due diligence requirements for beneficial ownership.
General impact on companies
From 26 June 2017 PSC information will not be updated to Companies House on the confirmation statement (CS01) as part of the annual cycle. Instead, the new forms PSC01 to PSC09 must be used whenever there is a change: and must be delivered much faster (14 days to update the register and another 14 days to send the information to Companies House).
AIM and NEX companies
Despite applying the same disclosure and transparency standards to Official List companies, from 26 June companies with securities admitted to trading on markets such as AIM and NEX will no longer be exempt from the PSC register requirement. This is both illogical and nonsensical, but is a direct result of the poor negotiation of the precise wording on AMLDIV.
Disclosures to counterparties
Another interesting change to the PSC registers regime is that it will be necessary to provide PSC information to contractual counterparties and those with which a UK body corporate forms a business relationship within two days of request. If a request has been made, this information must then be updated if any change happens during the course of a business relationship, whether requested or not. This new regulation 42 will be a useful due diligence tool in assessing the effect of change of control. However, this is an example of the UK tradition of gold plating of the AMLDIV requirement.
Scottish partnerships are notably different from English partnerships in that they have legal personality. There has been a growing perception that such arrangements can therefore be used to cloud the transparency disclosures being sought by the UK Government. Accordingly, in a parallel change which is entirely unrelated to the implementation of AMLDIV, certain Scottish partnerships will fall into the PSC registers regime.
From 24 July 2017:
- Scottish limited partnerships which are "active"; and
- Scottish Partnership where all of the partners are corporate bodies;
must register and maintain PSC information with Companies House.
This leads to an oddity. An English or Scottish or Northern Ireland partnership which is not registered as a limited partnership has no filing obligation with the Registrar of Companies. However, from June some, but not all Scottish general partnerships will need to file details of its registrable people with significant control, even though there is no similar disclosure of the partners (the legal owners).
PSC for property
Many corporate bodies own real estate.
Corporate bodies incorporated in any part of England and Wales need to comply with the PSC registers regime. Other owners of real estate do not need to comply.
In early 2016, the UK Government issued a proposal to bring in what can be generally described as "PSC for property", creating a new transparency register of non-UK body corporates holding English real estate. The proposal has progressed and now includes all parts of the UK. Helpfully, the eventual register will be maintained at Companies House and will again be built upon the PSC registers infrastructure. There are a number of issues to be worked through, but it is apparent that there is political determination to deliver this new system. Notably, it will require registration IDs to be included on Land Registry forms in order to deal in relevant real estate.
Before the calling of the June 2017 general election, the relevant civil servants had been instructed to expect to draft the legislation over the summer. Regardless of the result, this is likely to happen and be a legislative rarity: non-Brexit related legislation to be considered by the next Parliament.
Finally, the new overseas regime will also have a registration requirement in relation to public procurement. This is a highly political step, which is effectively an admission by government that it does not properly seek such information through its public procurement processes.
It is all a bit confusing. In short, having now grown accustomed to the PSC register regime, one year on it is all change! Do not assume that what was the case last year can be replicated this year. The PSC/beneficial ownership landscape has become significantly more complex – and this takes place in two stages on 26 June 2017 and 24 July 2017.
For further information please contact Edward Craft at email@example.com.