Register of people with significant control

Register of people with significant control

April 6th sees a change to the law relating to those who are deemed to be “people with significant control (PSCs)”

UK companies (Companies), Societates Europaeae (SEs) and limited liability partnerships (LLPs) will need to identify and record details of the people who own or control their company and will need to keep a PSC register of those interests.  This is in addition to any existing registers which they may already be required to keep, including registers of directors and registers of members (shareholders).  Additionally, Companies, SEs and LLPs will be obliged to file the PSC information with the central public register at Companies House.

It is claimed that the PSC register will increase transparency as to the control and ownership of UK companies, thus assisting investors considering investment in a company and support law enforcement agencies in money laundering investigations.

The measures, which are to be phased in from next month, will affect most law firms.  Not only will many of those operating as registered companies or LLPs need to take steps to set up a register and file information but also there will be changes to the client identity checking processes required by the Money Laundering Regulations 2007 and firms should consider the new provisions in any advice provided to commercial clients.

The requirement for Companies, SEs and LLPs to keep a PSC register are set out in Part 21A of the Companies Act 2006 (as inserted by the Small Business Enterprise and Employment Act 2015) and in the Register of People with Significant Control Regulations 2016, the European Public Limited-Liability Company (Register of People with Significant Control) Regulations 2016 and the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016.

Who are “People with Significant Control”

For the purposes of Part 21A, a PSC is an individual who:

  1. Owns (directly or indirectly) more than 25% of the shares
  2. Holds (directly or indirectly) more than 25% of the voting rights
  3. Holds (directly or indirectly) the right to appoint or remove the majority of directors
  4. Otherwise has the right to exercise, or actually exercises, significant influence or control, or
  5. Holds the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which though not a legal entity would satisfy any of the first four conditions if it were an individual.

Thus if a company has five shareholders – each having only one share, no enhanced voting rights and no significant influence or control, then those shareholders will not, under normal circumstances, be subject to the duty to register.  However, if there are agreements to vote or exercise rights jointly, and the total combined value of the shares or rights exceed 25%, then there will be a duty to register.  Companies must ensure that they investigate the true position before reaching a final decision.

However, you must note that the PSC register cannot be empty.  Therefore, if you do not have anyone who is a person with significant control then you must state this in the register.  The guidance issued by the Department for Business Innovation and Skills (BIS) (www.gov.uk/government/uploads/system/uploads/attachment_data/file/505303/NON-STATUTORY_GUIDANCE_FOR_COMPANIES_AND_LLPS.pdf) suggests, using the following wording:

“The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company.”

or if your investigation of the matter is incomplete, then you must state this in the register.  BIS suggests using the following wording:

“The company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company.”

Either way, you must ensure that from 6th April 2016 onwards you always have information on your company’s PSC register about your company’s PSCs (or registrable RLEs) or your company’s status in searching for its PSCs (or registrable RLEs).

Recording, Registering and Updating the Information

So what is the information that needs to be recorded?

If the PSC is an individual, then the details that must be obtained and recorded are:

  • Name,
  • date of birth,
  • nationality,
  • country, state or part of the UK where the PSC usually lives,
  • service address,
  • usual residential address (this must not be disclosed when making your register available for inspection or providing copies of the PSC register),
  • the date when the relevant person became a PSC in relation to the company (for existing companies the 6 April 2016 should be used),
  • which of the conditions for being a PSC have been met. Note that for conditions (i) and (ii) this must include the level of their shares and voting rights, within the following categories:
    • Over 25% and up to (and including) 50%,
    • More than 50% but less than 75%, and
    • 75% or more
  • however, note also that the company only needs to identify whether a PSC meets condition (iv) if they do not exercise control through one or more of conditions (i) to (iii);

  • whether an application has been made for the individual’s information to be protected from public disclosure, see Annex 2 of the full guidance for further information.

If, however, the PSC is a company rather than a person then different information needs to be recorded in the register (see the BIS Guidance).

It is also essential that you confirm the information about a PSC before you enter it on the PSC register. Information can be treated as confirmed if:

  • The PSC supplied your company with the information;
  • The information was provided to your company with the knowledge of the PSC
  • You asked the PSC to confirm the information was correct, and they replied that it was so; or
  • You hold previously confirmed information and have no reason to believe it has changed.

It is up to the company to take such steps as are reasonable to contact its PSCs and confirm the information for the register.  Refusal to provide the information is a criminal offence.  A company may also approach people who it believes have knowledge of who its PSCs are. Failure to comply is also a criminal offence.

Annex 3 of the BIS guidance provides sample letters that can be sent to PSCs and others.

Because the PSC register can never be blank, then in the event that the PSC information cannot be provided, then a statement will need to be made in the register explaining why it is not available.

Companies will need to provide the information on the PSC register to Companies House as part of the new Confirmation Statement (which replaces the Annual Return process). The central PSC register will be publicly accessible at Companies House.

In addition, companies will need to make their own PSC register available for inspection on request at the company’s registered office or provide copies on request (although note that when doing so the usual residential address must not be included).  Note that individuals who may be at risk of violence or intimidation as a result of being on the register can apply to Companies House to have their information protected

Not only must information be put on to the register but it must also be must be kept up to date. Thus, the company must enter updated information on its own PSC register and provide updated information to Companies House as part of the Confirmation Statement, if it has:

  • become aware of a change;
  • the information needs to enter on its own PSC register; and
  • confirmed the information if it relates to an individual who is a PSC and the information has not been provided by the PSC or with their knowledge.

Be aware that failure to provide accurate information on the PSC register and failure to comply with notices requiring someone to provide information are criminal offences, and may result in a fine and or a prison sentence of up to two years.

Impact on Money Laundering Provisions

In a wider context the new requirements anticipate certain changes to the money laundering “customer due diligence (CDD)” regime as a result of the Fourth EU Directive on Money Laundering which was approved last June, relating to beneficial ownership. Under current CDD provisions beneficial owners are, broadly, anyone with a 25+ percentage shareholding in a company, with similar definitions for those concerned with trusts and other “obliged entities”. Much the same tests for those who qualify as beneficial owners will now apply to PSCs.

One of the most notable changes within the Fourth EU Directive is that all member states will have to create and maintain a register of beneficial owners which will need to be made available to those with a legitimate interest in their contents. The record keeping requirements will apply to companies and LLPs and also, in the UK, trusts that pay tax. Law firms will be entitled to inspect the new registers in relation to companies but whether they will be allowed to do so in relation to trusts is still open for consultation.

The UK government might, in one respect, be seen to have jumped the gun on these provisions through the new PSC regime. However, for once, this regulatory change will make life easier for law firms as the task of checking beneficial ownership interests has been one of the most confusing elements of the AML regime to date. As explained by the Law Society Practice Note on Money Laundering (October 2013), although it is necessary to check for beneficial ownership details this need not involve conducting a full identity check as required in most matters for new clients, unless suspicions arise as to the nature of the instructions or the bona fides of those concerned.  On this see, if of interest, para 4.7 of the Law Society Practice Note and, in particular, at 4.7.2:

“only in rare cases will you need to verify a beneficial owner to the same level that you would a client”.

Clearly, being able to consult a formal register of beneficial owners will be helpful when conducting CDD but it might prove to be even more helpful in relation to the other obligation to keep CDD up to date on existing clients by way of “ongoing monitoring”.

Currently a company client should be asked from time to time if there have been changes to the ownership and control structure to see if somebody now qualifies as a beneficial owner, but in future it will be possible to meet this obligation without the direct interrogation of the client – a source of common frustration according to many who do so.

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