In this article, we look at how the PSC regime has so far been implemented and enforced, and how proposed changes to the legal landscape could impact the regime’s application. By way of reminder, the PSC regime requires most UK companies and LLPs to identify the individuals (PSCs) and relevant legal entities (RLEs) which have control over them, enter this information onto their PSC register and make this information publicly available at Companies House. Typically, direct ownership of more than 25 per cent, or indirect ownership of more than 50 per cent, in a company or LLP will constitute significant control for the purposes of the PSC register.
The story so far
Application of the PSC regime is not always straightforward. In fact, identifying PSCs and RLEs is often a complex process when looking at intricate group structures. A recent study by Global Witness1 has shed some light on how companies have fared so far when completing their PSC registers. While only 2.1 per cent of companies stated that they were struggling to identify a beneficial owner or collect the right information, the study also uncovered a glut of mistakes on companies’ PSC registers, with almost 9,800 listing their beneficial owner as a foreign company (and nearly 3,000 of these as companies resident in tax havens). Subject to some limited exceptions, RLEs should of course be UK entities. Additionally, and quite remarkably, 10 PSCs have their nationality listed as “Cornish”.
While some of these discrepancies will undoubtedly be as a result of inadvertent misapplication of the rules, there are clearly some deficiencies in the methods used to gather data, which could potentially allow individuals with beneficial ownership of UK companies to obscure this information. Despite a generally successful first year, various modifications to the PSC regime have been proposed in order to improve the regime’s effectiveness and ensure blanket transparency.
The introduction of the Fourth Money Laundering Directive
The Fourth Money Laundering Directive (MLD4) (for which the consultation period ended in November 2016) must be implemented by all EU member states by 26 June 2017. Despite Brexit, the UK will not be exempt from implementing MLD4 as it is required to apply all EU legislation until it ceases to be part of the EU.
MLD4 will extend the scope of the PSC regime, meaning that certain legal entities and trusts which are currently exempt will need to maintain PSC registers. MLD4 will also require entities to keep their beneficial ownership information at Companies House updated in addition to providing this information annually via the confirmation statement. This differs from the current PSC requirements, under which (unless it elects to keep its PSC register at Companies House) each entity is simply required to update its internal PSC register on a daily basis.
Consultation on foreign company property registers
Foreign companies are not currently caught by the PSC regime. However, as part of the government’s plan to implement its G20 commitment towards beneficial ownership transparency, it announced that the UK will establish a public register of beneficial ownership for foreign companies:
- which own or buy real estate in the UK. Specifically, the government proposes that a foreign company will only be able to register its ownership of real estate in England and Wales in the future by providing the Land Registry with a unique identification number obtained from the proposed new foreign companies beneficial ownership register; or
- which bid on UK central government contracts valued at over £10 million.
The details of this regime have not yet been finalised but a government discussion paper published in March last year considered a range of proposals.
If the proposals concerning the ownership of real estate are introduced, the consequences could be wide-reaching. Foreign companies which hold real estate in the UK for investment purposes and those which hold premises from which to trade or operate in the UK will be affected (if those foreign companies hold the freehold title to those premises or lease those premises for a term of longer than seven years). Similarly, if the proposals on central government contracts are enforced, foreign companies will need to consider whether they are willing to disclose details of their beneficial ownership before bidding on any major UK contracts.
Enforcement of the PSC regime
To date, no companies or LLPs (or their respective officers or designated members) have been found criminally liable for failing to maintain a PSC register. Consequently, it remains to be seen how the PSC regime will be enforced in practice as, at present, companies are not obliged to keep their registers at Companies House. It is likely that the regime will be easier to enforce when entities are required to keep the details of their beneficial owners at Companies House up to date, as required under MLD4, and we may begin to see fines being imposed on those companies which fail to comply with the regime’s requirements.
- What does the UK Beneficial Ownership Data show us?
Client Alert 2017-117
