Beneficial Ownership: Joint Committee Report On Draft Registration of Overseas Entities Bill

On 20 May 2019, the House of Commons and House of Lords Joint Committee on the draft Registration of Overseas Entities Bill published a report following its pre-legislative scrutiny of the draft Bill, which would establish a public register of beneficial owners of overseas entities that own or purchase land in the UK.

The report makes several recommendations aimed at improving the draft legislation and increasing its likelihood of achieving the government’s objective of ensuring transparency surrounding the ownership of UK land. These recommendations include:

• Various measures to clarify the scope of overseas entities that are subject to the registration obligations in the draft Bill, including requiring the government to publish guidance on how the definition of overseas entities should be interpreted, expressly providing that individuals are outside its scope and introducing a pre-clearance mechanism for confirming in advance of transactions whether legal entities are registrable.
• Giving serious consideration to lowering the 25% ownership and voting thresholds in the draft Bill’s definition of a registrable beneficial owner, to address concerns that the thresholds could be exploited to circumvent the registration regime. The report also considers that the problems identified with the proposed thresholds in the context of the draft Bill apply equally to the People with Significant Control (PSC) register for UK companies, and therefore recommends that consideration of the applicable thresholds should be extended to the PSC regime.
• In addition to the obligation on overseas entities to update or confirm their beneficial ownership annually, including a specific requirement to update the register before making any disposition of UK land.
• Introducing workable verification mechanisms to deter the submission of false information to the register, such as allowing users to “flag” suspicious or potentially incorrect information, and delegating verification responsibilities to Companies House or regulated professionals.
• Introducing civil penalties for overseas entities that breach their obligations under the draft Bill, which could be backed up by criminal sanctions for non-payment.

The report also expresses concerns that as trusts are outside the draft Bill, they could be used as a vehicle to circumvent its registration obligations. While the government has indicated to the Joint Committee that the UK’s implementation of the Fifth Money Laundering Directive ((EU) 2018/843) (5MLD) would aim to close this loophole, the report calls on the government to clarify which arrangements for holding UK land involving trusts will be covered by the draft Bill, and which by implementation of 5MLD, as well as issuing statutory guidance on those situations where the draft Bill covers such arrangements. Given the congruence between the draft Bill and 5MLD, the report also advocates their simultaneous implementation to prevent duplicative registration regimes, and to avoid trusts slipping through any gaps between the two frameworks.

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