As it committed to do, BEIS has issued draft legislation for a new regime for “PSC in property”, in the form of the Overseas Entities Bill.
This bill has only been published in draft and has not been read in Parliament. Indeed, it is not provided for in the current session. The regime is expected to be operational by 2021.
However, it is clear that BEIS intends to proceed with the new regime which will require disclosure of the persons behind overseas entities owning real estate across the UK. The original proposal was for England and Wales, but the devolved administration of Scotland has since got on board and, with no operating executive in Northern Ireland, it is easy for the UK government to include that part of the UK.
The trust industry has been awaiting clarification of whether trusts will be within scope and will be pleased that, whilst “overseas entities” is defined to include companies, partnerships and other entities with legal personality, it does not include overseas trusts that directly hold UK real estate. The beneficial owners of such trusts are already subject to the UK’s “Trust Register” regime and disclosable to HMRC and law enforcement agencies and, with the regime to be extended with the upcoming introduction of the Fifth Anti-Money Laundering Directive, this has been deemed sufficient from a transparency perspective given the legitimate need to protect minor and vulnerable beneficiaries. Trusts that hold UK real estate via an offshore company are subject to the regime but will only need to disclose those with significant influence or control (not ownership) of the trust.
The good news is that the regime is, very sensibly, built upon the infrastructure for the registers of people with significant control (PSC) regime inserted into the Companies Act 2006 with effect from 30 April 2016. The register will be maintained at Companies House and not the Land Registry. In a similar way to the sanctions under the PSC regime, an overseas entity will not be able to acquire registered title or dispose of registered title without being on the register. Just as the PSC regime, one can expect that there will be significant negligent or deliberately misleading filing and it will be interesting to observe if the regulatory and enforcement bodies take action to maintain the quality of the register.
However, in publishing the draft legislation, BEIS seems to have missed a fairly obvious and fundamental point, namely the required review of the registers of the PSC regime which must take place by the early part of 2019 is a legal obligation of the Secretary of State.
Whilst one can expect that the registers of the PSC regime (the UK’s gold-plated and slightly non-compliant implementation of the EU Fourth Anti-Money Laundering Regulation) will remain despite Brexit, the errors and inconsistencies within the regime remain and surely the triennial review is the right time for the Secretary of State to take on board all of the comments it has received in order to deliver an effective regime which will be able to stand the test of time.
Only once the defects and oddities of the registers of the PSC regime are fixed should a revised Overseas Entities Bill be introduced to Parliament. At the moment, BEIS has fallen into the trap of transposing across the errors.