Richard Hiscoke explores the impact of the Transparency and Filing parts of the SBEE on companies (Parts 7 and 8 of the SBEE, respectively).
In this article:
The introduction of new transparency measures regarding company owners in the UK is intended to ensure that the country is an open and trusted place to do business. While also helping to deter, identify and sanction those who hide their interest in UK companies to facilitate illegal activities. At the same time, filing measures have also been introduced to reduce red tape and increase the quality of information available publicly about companies.
All companies will be impacted by these changes in the Act to at least some degree and as such this will impact the way companies manage their own processes.
The Government plans to extend the transparency obligations to certain other legal structures. The Fourth EU Money Laundering Directive (4MLD) will be implemented in the United Kingdom in 2017. This will require all other legal and corporate entities not caught under the SBEE to also maintain and publicise beneficial ownership information.
Implementation of the SBEE will occur in stages, though the precise timetable is still subject to change. Some of the important proposed and implemented changes are as follows:
| 26 May 2015 |
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| October 2015 |
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| April 2016 |
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| June 2016 |
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| October 2016 |
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The announcement by the Prime Minister at the June 2013 G8 summit that the UK would enhance its transparency provisions has led to the implementation of significant transparency measures under the SBEE. The Prime Minister’s recent speech in Singapore in July 2015 re-emphasised the need for greater transparency following the publication of data showing that a considerable portion of housing in London was being bought up by foreign owners using anonymous shell companies and potentially laundered funds.
Chief among these transparency measures is the public disclosure via the public register of company information in the UK (Companies House) of beneficial owners and people with significant control (PSCs) over every private limited company and the obligation to maintain a PSC Register of such persons.
A PSC is any individual and any ‘relevant legal entity’ that satisfies one or more of the following conditions in relation to the company:
Condition 4 is very broad and could include exercising control through an agreement such as a shareholders’ or members’ agreement. Similarly, the impact that trustee shareholdings have in influencing ‘significant control’ is yet to be discerned in its entirety. In June 2015 the Government launched a further consultation on what will constitute ‘significant control’ under condition 4. This consultation closed in mid-July 2015 and the response awaited.
The PSC Register will include every PSC’s name, date of birth (minus the day), nationality, residential address and the PSC’s nature and extent of the interest in the company. A company will have the option to maintain their own PSC Register and / or utilise the public PSC Register directly.
Share warrants, known as ‘Bearer shares’, are unregistered shares owned by the physical holder. They are considered an easy means of facilitating tax evasion and money laundering as they are anonymous and transferable. As a result of the abolition measures under the SBEE, existing share warrants need to be surrendered by 25th February 2016 for registered shares in the company concerned. Failure by any warrant holder to exchange the warrants for shares in this timescale will result in the loss of entitlement to receive the shares comprised in the warrant.
The use of corporate directors, that is where one company is the director of another, will be prohibited. The date of prohibition is currently planned for October 2016, save in the case of some limited exceptions. It is anticipated that directors will need to consider whether they fit in one of the excepted cases or whether they need to otherwise change their statutory management structure in order to comply with the new requirement.
Shadow directors, controlling all or a majority of the statutory directors of a company, will have legal duties on a par with individual directors.
Companies will have a duty to investigate and maintain information on PSCs and will be given the means to obtain such information by serving disclosure notices on someone the company knows, or has reasonable cause to believe: is a PSC, knows the identity of a PSC or has ceased to be a PSC, and to update this information when it changes. Therefore companies also need to put systems in place to ensure that further disclosure notices are served as soon as reasonably practicable after they learn of or have reasonable cause to believe that any PSC information has changed.
A criminal offence is committed by a company, and its officers, if the company fails to take steps or give notices required under the SBEE. Such offences are punishable by imprisonment or a fine (or both).
Additionally, the SBEE provides companies with the power to impose a restriction notice on a PSC or other person who fails to comply with a disclosure notice (without a court approval), subject to certain conditions having been met, such as the service of a warning notice. Relevant interests, such as rights attaching to shares in the relevant company, voting rights, as well as related exercisable powers, would be restricted until the person complies with the original disclosure notice.
This part of the SBEE is intended to simplify the current filing requirements for companies, remove duplication as well as improving the quality of the information available on the public companies register. The new company filing requirements include:
The proposals for increasing transparency and reducing red tape in relation to filing requirements are to be welcomed.
Some changes have already been introduced and the proposed timeline for implementation under the SBEE requires that companies maintain a PSC Register from April 2016, with proposed filing for limited companies from June 2016. Company statutory management structures will need to be updated in order to comply with the removal of corporate directorships proposed from October 2016.
In addition, the 4MLD, which must be implemented in 2017, will necessarily expand the requirement for maintaining and publicising beneficial ownership information, beyond limited companies and LLPs, to all legal and corporate entities at that time.
Many companies may wish to simplify their internal administration by opting for Companies House to maintain their statutory registers. The exact form and content of the information to be held by Companies House is not yet known, but it will be available on the public record. Consequently there is a risk that certain information, such as directors’ residential addresses or the addresses of members, may become publicly available. Directors should consider this possibility and the reaction of members, prior to opting into to having their statutory records held by Companies House.
The need for companies to take action following a thorough consideration of the impact of the changes under the SBEE is strongly recommended. Not only will this ensure compliance it will also serve to facilitate the transition to the new arrangements and take advantage of the measures introduced under the SBEE to reduce red-tape.