5 September 2023
The continuing march towards transparency – 6 of 6 Insights
Changes to the beneficial ownership register of UK companies (the Register of Persons with Significant Control - PSC register) will impose new identity verification obligations on certain shareholders and other persons with significant control, with significant penalties for failing to comply.
These changes, which are being introduced by the Economic Crime and Corporate Transparency Bill ("Bill"), are part of the government's Economic Crime Plan 2: 2023-2026 which aims "to improve transparency in relation to UK companies" by enabling Companies House to verify the identities of those setting up, managing, and owning companies. The Bill introduces significant reforms to Companies House; this article focuses on the changes to the PSC regime being made by the current form of the Bill.
UK incorporated companies are required to identify and keep a register of “people with significant control” (PSCs) over the company.
An individual is a PSC in relation to a company if, broadly, they
If a body corporate would be a PSC in relation to a UK company if it was an individual, it will be registrable on the PSC register for that company if the body corporate is either (a) a UK company which is itself subject to the PSC regime or listed on the London Stock Exchange or (b) a non-UK company that is treated as subject to equivalent disclosure requirements – such entities are referred to as "Relevant Legal Entities" (RLEs). Non-UK companies that are registered on the register of overseas entities that hold UK land (the ROE), or have voting shares admitted to trading on a UK or EU regulated market or a specified market in the USA, Japan, Israel and Switzerland, will be RLEs.
If an individual holds their interest (or control) in a UK company through a RLE, then the individual will not also be registrable on the PSC register of the underlying UK company (as the individual will be identifiable from the RLE's own PSC register or equivalent disclosures). If, however, the individual holds their interest or control through a non-UK entity which is not a RLE, the individual will be regarded as having a registrable indirect interest or control if the individual holds a majority stake in that non-UK entity.
As part of the changes being made by the Bill, the requirement for companies to create and maintain their own PSC register is being abolished – instead all relevant information relating to a company's PSCs and RLEs will only be held on the public register at Companies House. .
The second significant change being made to PSCs under the Bill is the introduction of new identity verification requirements. All new and existing registrable PSCs will need to have their identities verified. All new and existing registrable RLEs will need to have the identity verified of one of their officers (a director of the company or member of the LLP or equivalent) who is an individual - this person is known as a "registered officer". Registrable RLEs will also need to maintain a registered officer whose identity is verified. Similar identity verification requirements will also apply to all directors of UK companies.
Identity verification can be done directly with Companies House (through an online portal, by providing a photograph or scan of their face and the identifying document), or through an authorised corporate service provider. The online Companies House verification will be done by linking an individual with a primary identity document, such as a passport or driving licence, although alternative methods will be available to individuals who do not have photographic identity documents. There will be a transitional period - likely to be 6 months - for existing PSCs and RLEs to comply, although officers will not be able to submit filings with Companies House on behalf of their company until they have had their identity verified.
On the incorporation of a new company, if the PSCs are not verified within 14 days of incorporation, they will commit a criminal offence. RLEs will have 28 days to verify the identity of one of their officers who is an individual.
These new rules will also apply to non-UK companies that are required to register their UK establishment with Companies House due to having some degree of physical presence in the UK (such as a place of business or branch) through which it carries on business.
It is expected that identity verification will be a one-off requirement. However, the Bill contains power for regulations to be made to provide for circumstances in which someone ceases to be an individual whose identity is verified. It is anticipated that this would only be in cases where the registrar has reason to doubt the validity of the identity verification, such as on suspicion of fraud.
Anyone failing to comply with the identity verification requirements, without reasonable excuse, will commit an offence, and could face criminal proceedings and a fine. Where an offence is committed by a RLE every officer of the entity will commit an offence.
Where a UK company is held in a trust structure the way the PSC rules operate can lead to difficulties in determining who should be treated as a PSC of the underlying company, or lead to individuals or entities that have no actual interest in, or control over, the underlying UK company being recorded as PSCs on the PSC register.
For example, where a UK company is wholly owned by a non-UK company which is itself held in a non-UK trust with a non-UK corporate trustee, the ultimate owners of the non-UK corporate trustee may be recorded on the PSC register despite having no interest in, or control over, the UK company. In addition, any individual who is considered to exercise significant influence or control over the trust will need to be recorded on the PSC register of the UK company. While in some cases it is clear that an individual has such influence or control - for example, where they have power to appoint and remove the trustees – it is not always as easy to determine, and companies are reliant on the trustees to provide them with accurate information on whether there are any relevant power holders.
While there will be a gap between the Bill being passed into law and the provisions taking effect – to give Companies House time to develop the IT systems necessary for this new regime - as well as a transitional period for existing PSCs and RLEs to comply, there is clearly a risk that some will not be made aware of the new rules in time (particularly where trusts are involved), or appreciate the significant penalties they face for failing to comply by the deadline. It is not clear whether Companies House plans on sending notice of the new requirements to all registered PSCs and RLEs, or if, as with the ROE regime, Companies House will take a 'light-touch' approach to penalties when the rules first come into force.
Companies should not, however, be waiting for Companies House to take the lead and should be taking steps now to ensure their PSCs and RLEs are aware of the new requirements, so that they can start to prepare once the Bill is passed.
If you have any questions on how the issues raised affect you, please get in touch.
This article forms part of a series on transparency issues, including articles covering:
24 April 2023
26 April 2023
10 May 2023
16 May 2023
4 July 2023
5 September 2023
by Multiple authors