Regulations introducing important changes to the regime relating to people with significant control over a company came into force yesterday. The changes may be summarised as follows:
Background
The requirement for companies to keep a register of people with significant control, or PSC register, came into force on 6 April 2016 by way of amendment to the Companies Act 2006 and enactment of the Register of People with Significant Control Regulations 2016. This legislation implemented principles agreed at the G8 Summit in 2013 to increase corporate transparency and prevent the misuse of companies and legal arrangements. Since 30 June 2016, a company has had to file PSC information annually when filing its confirmation statement (formerly the annual return). See our earlier article for further information on the PSC register.
In parallel with the development of the PSC regime in the United Kingdom, the European Union in 2015 enacted its Fourth Money Laundering Directive, which includes (at article 30) provisions relating to the disclosure of information about the beneficial ownership of companies.
While the UK’s PSC regime is similar to the provisions required by the Directive, in certain respects the requirements of the Directive go further. In particular, the Directive applies to ‘all corporate and other legal entities’ incorporated within the territory of each member state, and requires that information about beneficial ownership held on central registers should be ‘adequate, accurate and current’.
EU member states were required to transpose the Directive into national law by 26 June 2017, and the government consulted on the transposition of the provisions relating to beneficial ownership in November 2016.
Publication of the Regulations implementing the changes, however, was delayed by the dissolution of Parliament on 3 May for the general election. Because the new Parliament was not opened until 21 June, it has not been possible to allow the usual 21 days between laying an instrument before Parliament and bringing it into force while still meeting the deadline for transposition of the Directive.
The interval between publication and coming into force has therefore been much shorter in this case. The Information about People with Significant Control (Amendment) Regulations 2017 and the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 were made on 22 June 2017, laid before Parliament on 23 June 2017, and came into force on 26 June 2017.
Scope of the PSC regime
Certain types of company are excluded from the PSC regime on the grounds that they are already subject to equivalent disclosure requirements.
It remains the case that companies admitted to trading on a regulated market in the UK (such as the London Stock Exchange Main Market), a regulated market in a European Economic Area state other than the UK, and certain markets in Israel, Japan, Switzerland and the United States are not subject to the PSC requirements.
With effect from 26 June 2017, however, the PSC regime does now apply to companies admitted to a prescribed market in the UK, including the Alternative Investment Market (AIM) and the NEX Exchange Growth Market (formerly the ISDX Growth Market). These had previously been excluded from the PSC legislation but, because the Directive does not include an exemption for companies listed on prescribed markets, they have now been brought within its scope.
Under transitional arrangements, a company listed on AIM or the ISDX must comply with its PSC obligations by 24 July 2017.
The PSC regime also now applies to unregistered companies subject to the Unregistered Companies Regulations 2009, i.e. unregistered companies (not incorporated under a public general Act of Parliament) that are formed for the purpose of carrying on a business that has for its object the acquisition of gain by the body or its individual members.
As expected, separate regulations apply the PSC regime to Scottish limited partnerships and also to Scottish general partnerships where each of the partners is either a limited company or an unlimited company each of whose members is a limited company.
Scottish limited partnerships fall within the scope of the Directive because (unlike English limited partnerships) they have legal personality. The requirement for Scottish limited partnerships to keep a PSC register will be important for venture capital funds, which often include a Scottish limited partnership as carried interest partner.
Scottish partnerships to which the PSC regime applies must keep their PSC information on the central register at Companies House, rather than keeping their own PSC registers. They must comply with their PSC obligations by 24 July 2017.
Once Scottish limited partnerships are subject to the PSC regime, a Scottish limited partnership will also be capable of being a registrable relevant legal entity in relation to a company. Companies with Scottish limited partnerships among their shareholders should check this point.
While the November consultation had proposed that European co-operative societies (SCEs), open-ended investment companies (OEICs) and investment companies with variable capital (ICVCs) should be required to report details of their beneficial ownership to a central register, the Regulations do not contain provisions relating to such entities. Nor is any mention made of building societies, charitable incorporated organisations (CIOs), co-operative societies and community benefit societies, which the November consultation suggested should be required to place information on record in circumstances (expected to be rare) where they do have a beneficial owner. It remains to be seen whether further legislation will be brought forward to address these matters.
Relevant changes – deadline for notices to registrable persons
A company has a duty to notify a registrable person or registrable relevant legal entity whose particulars are stated in its PSC register if it knows or has reason to believe that a relevant change has occurred.
Previously, such notice had to be given as soon as reasonably practicable after the company learned of the change or first had reasonable cause to believe that the change has occurred.
Now, the company must notify the person or legal entity as soon as reasonably practicable and within 14 days after the company learns of the change or first has reasonable cause to believe that the change has occurred.
Transitional arrangements provide that, if on 26 June 2017 a company already has a duty to notify a person or legal entity of a relevant change, it must give such notice by 9 July 2017.
Deadlines for updating the PSC register
Time limits have been introduced for updating a company’s PSC register.
A company must enter an individual registrable person in its PSC register within 14 days of the day after all of the individual’s required particulars have been confirmed. It must enter a registrable relevant legal entity in its PSC register within 14 days of the day after it first has all the required particulars of that entity.
Similarly, where a company becomes aware of a relevant change to the required particulars of an individual registrable person, it must update its PSC register within 14 days of the day after the relevant change is confirmed. It must enter a relevant change to the required particulars of a registrable relevant legal entity within 14 days of the day after it has details of the relevant change.
A deadline has also been introduced for the entry by a company of an additional matter in its PSC register. Additional matters include circumstances where the company knows or has reasonable cause to believe that there is a registrable person but has not identified them, or where the company has identified a registrable person but their required particulars have not been confirmed, or where the company has given a notice which has not been complied with. The company is now required to enter any additional matter in its PSC register within 14 days of the day after the requirement to enter the additional matter arises.
Transitional arrangements provide that, if on 26 June 2017 a company already has a duty to update its register, it must update it by 9 July 2017.
New requirement to file PSC information in real time
In order to meet the provision in the Directive that PSC information held centrally should be current, a new requirement for companies to file PSC information at Companies House in real time has been introduced.
Previously, a company had to file any changes to its PSC register annually when filing its confirmation statement.
Now, when a company enters or alters required particulars or notes an additional matter in its PSC register, it must file the alteration at Companies House within 14 days of making the change.
The filing should be made using forms PSC01 to PSC09, as applicable (these are the forms already used by companies electing to keep their PSC register on the central register):
The requirement for a company to file PSC information as part of its confirmation statement is removed. In filing a confirmation statement the company must now confirm that it has complied with the requirement to file all changes to its PSC register, in the same way that it confirms it has filed all changes to its directors.
This is a notable change from the approach taken in the November consultation, which suggested that the requirement in the Directive for Companies House records to be current would be satisfied if companies were required to file changes to the PSC register within six months. Instead, the obligation to file PSC changes has been brought into line with that applicable to changes to a company’s directors, which must also be filed within 14 days.
Disclosure of secured information to credit institutions and financial institutions
A registered person may apply to the Registrar of Companies for protection from disclosure of their required particulars if they believe such disclosure would put them at serious risk of being subjected to violence or intimidation. If such an application has been granted (or is in process of being determined or subject to appeal), then the Registrar may not use or disclose that person’s required particulars, which are referred to in this context as ‘secured information’.
The Registrar may nonetheless disclose secured information to a public authority, provided that certain conditions are satisfied. In order to enable customer due diligence for anti-money laundering purposes, the Registrar may now also disclose secured information to credit institutions and financial institutions (referred to in the Directive as ‘obliged entities’), again subject to the satisfaction of certain conditions.
Comment
These changes are a significant development of the PSC regime and will require many companies to take action in short order.
In particular, any company where there have been changes to its PSC position since its last confirmation statement was filed must enter those changes in its PSC register by 9 July 2017 (subject to confirmation of changes to the required particulars of any individual registrable person) and then file the changes at Companies House within 14 days (so by 23 July at the latest).
The new regime also marks a notable change to the disclosure of information in M&A transactions. Previously, where the entire issued share capital of a company was sold to a corporate buyer, the transaction would not have to be disclosed until the target company filed its next confirmation statement, which could be up to a year later. Under the new arrangements, the target is now required to update its PSC register within 14 days, and file the change at Companies House within a further 14 days. The change in ownership will therefore become public within 28 days of completion.
For further information on the PSC regime, see our materials which may be downloaded from here. The government’s updated guidance may be found here.
