New UK Register of Beneficial Ownership: From August 2022

What this is: An explanation of the UK’s Register of Overseas Entities that was introduced in August 2022 through The Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA 2022).

What this means: All overseas entities that own land/ property in the UK will now have to register with Companies House and disclose the identities of its beneficial owners as required under ECTEA 2022.

ECTEA 2022 is a significant legislation in UK’s fight against money laundering. It was passed due to a large percentage of UK properties, within and outside of London, being owned by foreign investors and many of them through corporate vehicles. ECTEA requires all overseas entities that own land or property in the UK to register with Companies House and disclose the identity of their beneficial owners, which is now publicly available on a new register, the Register of Overseas Entities (ROE).

The ROE is designed to make it easier for law enforcement and other authorities to track down and investigate criminals who use UK property ownership to launder money by having them disclose their identity publicly. They can no longer remain anonymous under opaque international corporate structures.

It’s one of a number of measures that the government has taken in recent years to strengthen the UK's AML regime. These measures include:

• PSC registers for UK-incorporated entities
• Strengthening of customer due diligence requirements for financial institutions
• Bringing crypto asset exchange providers and custodian wallet providers within the scope of FCA’s change in control regime. 

This blog will highlight the important aspects of this legislation and how it may affect your business.

Do you need help navigating these new laws in the UK? Click here or contact us to learn more!

What Is the Register of Overseas Entities?

On August 1st, the Economic Crime (Transparency and Enforcement) Act 2022 introduced a new Register of Overseas Entities. This legislation mandates that overseas entities currently holding land/property in the United Kingdom must register verified details about their beneficial owners or managing officers at Companies House before January 31st, 2023. 

Upon successful registration of the beneficial ownership of the Overseas entity, Companies House will issue an "Overseas Entity ID" to the registered overseas entity. This ID will be required for registration of the property transaction with the Land Registry. Overseas entities intending to engage in land transactions such as purchases, sales, transfers, leases, or creating charges against land in the UK must complete the registration process with Companies House. 

After registration, both the name of the overseas entity and its beneficial owners will be publicly accessible. The amendment provisions to the Land Registration Act 2002, which restrict the Land Registry from registering an overseas entity as a proprietor without a valid overseas entity ID, will be effective from September 5th. 

Starting from September 5th, 2022, overseas entities will be unable to register ownership/disposition of UK property with HM Land Registry unless they have completed the verification process with Companies House. 

Non-compliance with these requirements may lead to criminal penalties for the entity and its officers, with exceptions applying. The penalties can include fines of up to £2,500 per day or a prison sentence of up to five years. In cases where no beneficial owners have been identified, information about the managing officers of the overseas entity, including directors, managers, or company secretaries, must be provided.

What Is Beneficial Ownership?

The beneficial owners of an overseas entity may be one of the following: 

(i) Individuals

(ii) Legal entities subject to its own disclosure requirements

(iii) Government or public authorities

(iv) a trustee of a trust

 Beneficial ownership is defined as:

• Ownership of more than 25% of the company's shares of the overseas entity.
• Control over more than 25% of the company's voting rights of the overseas entity.
• Authority to appoint or remove the majority of the board of directors of the overseas entity.
• Has the right to exercise, or actually exercises, significant influence or control over the overseas entity.

When Must an Overseas Entity Register With Companies House?

For all types of overseas entities that possess freehold land or leasehold exceeding 7 years in:

• England and Wales from January 1, 1999, onwards.
• Scotland from December 8, 2014, onwards.
• Northern Ireland from August 01, 2022 onwards.

The compliance date for ECTEA is January 31, 2023. However, there are still several Overseas Entities that are yet to comply with this requirement. Also, it is important for foreign investors to understand and comply with this requirement on any future investments in UK land/property. There is also an annual obligation on overseas entities that are registered to update the information about its beneficial owners.   

The overseas entity must complete this step before proceeding with the registration process. Upon receipt of the notice from the overseas company, the beneficial owners have a period of one month to respond. Failure to comply with this requirement can result in penalties of up to £2,500 per day or a maximum prison sentence of five years.

Who Can Verify Information for the Beneficial Owners?

To enable the registration of an overseas entity with Companies House, the information about the beneficial owners must be verified by a "relevant person" (referred to as a "supervised agent" due to their supervision under Money Laundering Regulations). 

Relevant persons under ECTEA 2022 are:

1. trust or company service providers
2. credit institutions and financial institutions;
3. auditors, insolvency practitioners, external accountants and tax advisers;
4.  independent legal professionals;
5. estate agents and letting agents.

It is the responsibility of the relevant persons to independently verify the information of the beneficial owners that is being furnished to the Companies House. The relevant persons should consider in all cases which is the best source(s) to verify each piece of required information and use their professional judgment and scepticism when doing so.

In order to provide this service, the relevant person must first register with Companies House to obtain an agency code, which grants them the ability to authenticate the pertinent details concerning the beneficial owners or officers. 

It’s important to note that specific exceptions prevent the relevant person from being a family member or known close associate of any individual beneficial owner. Overseas entities should be aware that the verification process, under this new requirement, can potentially be complex and time-consuming. Consequently, it’s advisable to initiate the process at the earliest opportunity with a knowledgeable service company.