UK Government Responds to BIS Transparency and Trust Discussion Paper

by Dechert LLP
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The Department for Business, Innovation and Skills (BIS) on 21 April 2014 published the UK Government’s response to its discussion paper Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK businesses, regarding certain proposals to increase transparency in the ownership and control of companies. This update sets out the key proposals with which the Government intends to proceed.

In June 2013, the UK Government announced proposals to increase transparency in the ownership and control of companies. In particular, it proposed that it would:

  • Require companies to obtain and hold information about their ownership and control.
  • Create a central registry of beneficial company ownership, to be maintained by Companies House.
  • Review the use of bearer shares and nominee directors.

Behind the proposals was the belief that greater transparency and accountability would help to boost market confidence and create an environment for growth. In particular, Vince Cable, Secretary of State for Business, Innovation and Skills, has suggested that enhanced transparency of company ownership will assist the Government in tackling tax evasion, money laundering and terrorist financing and bolster the investment climate.

On 15 July 2013, the Department for Business, Innovation and Skills (BIS) published a discussion paper, Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK businesses (the “Paper”) in which it sought feedback on the Government’s proposals. The consultation period closed on 16 September 2013 and on 21 April 2014, BIS published the Government’s response to the Paper.

The key proposals with which the Government now intends to proceed, subject to certain amendments, are as follows:

1. Creation of a central registry of beneficial ownership

UK bodies corporate that currently file information on their members at Companies House will be required to identify their “qualifying beneficial owners”, which will be recorded within a central registry of company beneficial ownership information. As proposed, a “qualifying beneficial owner” would (i) be defined by reference to an ultimate interest in 25% of the shares or voting rights of a company; or (ii) be any individual who otherwise exercises control over the management of the company. The Government intends to refine and develop the definition of “control” to ensure maximum clarity and ease of application.

In most cases, where a qualifying beneficial interest is held through a trust, only the trustee (and not the beneficiary, settlor or protector of the trust) would need to be registered as the qualifying beneficial shareholder (although this may vary in certain circumstances).

Companies limited by guarantee and limited liability partnerships will be subject to the requirements and the current proposal is that companies traded on a regulated market (such as the Main Market of the London Stock Exchange) who are subject to the DTR (or equivalent requirements) and any other issuers subject to the DTR (such as companies admitted to trading on AIM), would be exempt.

The register will include details such as the beneficial owner’s full name, address and details of their shareholding as well as details of their nationality, usual country or state of residence, date of birth and service address. With the exception of residential addresses, the register will be available for public inspection at the company’s registered office (or at another specified location). However, in certain circumstances (which have not yet been determined), the Registrar of companies will allow beneficial owners to protect their full information from being publicly available.

Companies will be required to provide an official statement of beneficial ownership on incorporation and confirm this information is correct at least once every twelve months.

2. Ban of Corporate and Nominee Directors

The Government also intends to introduce a ban on corporate and nominee directors. There will be specific exemptions to the ban and a proposed one-year transitional period for existing companies to comply with the regime. Whether LLPs should also be subject to the ban is still the topic of Government consultation.

3. Abolition of bearer shares

The creation of new bearer shares will be prohibited and all existing bearer shares will be cancelled. Under current proposals, companies will have two months following royal assent before the ban comes into force, in which time they will be encouraged to discuss arrangements with bearer shareholders for surrendering their warrants.

What’s next?

Whilst the Government is keen to implement the registry of beneficial ownership as soon as practicable, many of the measures outlined above will require primary and secondary legislation which can only be introduced when Parliamentary time allows. Whether these measures will materially assist in achieving the Government’s aims remains to be seen. Similarly, the full extent of the proposed transitional arrangements for existing companies is still unclear, but we are hopeful that the guidance it provides will be both adequate and timely.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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