Introduction

The Beneficial Ownership of Legal Persons (Guernsey) Law 2017 received royal assent on July 25 2017 and came into force on August 15 2017.

The law was originally expected to take effect on June 30 2017. While commencement was delayed, the original timeline for compliance with the law remained unchanged; all new incorporations had to comply with the new requirements from the outset (ie, August 15 2017) and all existing legal persons must ensure compliance by October 31 2017 (or, for companies, February 28 2018). The Guernsey Registry has accepted submissions in respect of all legal persons from the commencement date.

This update provides a brief overview to assist in identifying the beneficial owners of legal persons, but is not exhaustive on the law's provisions.

What is a legal person?

The Guernsey Register of Beneficial Ownership is intended to include information in respect of all legal persons incorporated or created in Guernsey. It includes the following Guernsey entities:

  • companies registered in Guernsey;
  • foundations registered under Guernsey law; and
  • limited liability partnerships (LLPs) registered under Guernsey law.

From August 15 2017, the incorporation or creation of any Guernsey entity requires details of its beneficial owner to be submitted to the Guernsey registrar of beneficial ownership of legal persons. Existing Guernsey entities must do the same by October 31 2017, with the exception of companies, which have until February 28 2018 (to coincide with the requirement for annual validations).

The Beneficial Ownership (Definition) Regulations 2017, made on July 25 2017, define the persons or classes of persons – whether legal or natural – who will be a registrable person in respect of a Guernsey entity. Below are the definitions of 'ownership' and 'beneficial owner' for the purposes of the register.

Ownership

Companies

Owners are all persons that hold, directly or indirectly:

  • more than 25% of the company's shares;
  • more than 25% of the voting rights in the company; or
  • the right to appoint or remove a majority of the board of directors of the company.

Foundations

Owners are all persons that:

  • hold, directly or indirectly, more than 25% of the voting rights in the conduct and management;
  • hold, directly or indirectly, the right to appoint or remove a majority of the officials;
  • are a beneficiary with a vested interest;
  • are the default beneficiary in the event of the foundation's termination; or
  • are any other person that benefits from the foundation.

LLPs

Owners are all persons that hold, directly or indirectly, more than 25% of the voting rights in the conduct and management of the LLP.

In all cases, 'ownership' may be indirect and in some cases, identifying owners may involve investigation back through a chain of entities.

Beneficial owner

Test 1: ownership test

The starting point is that the beneficial owner of a Guernsey entity will be the natural person, beneficial corporate owner or trust that ultimately owns the Guernsey entity. A beneficial corporate owner is the owner of a Guernsey entity that is itself a Guernsey entity or is listed on a recognised stock exchange.

If a natural person or corporate beneficial owner is an owner in accordance with the requirements detailed above, it is registrable as the beneficial owner. If a trust meets the ownership requirements, there are specific requirements (see below).

If no registrable person can be identified under Test 1 or if the resident agent has reason to believe that natural persons (other than a natural person or corporate beneficial owner identified under Test 1) may have control of the Guernsey entity, Test 2 must also be considered.

Test 2: control test

The second test requires the identification of the natural persons, corporate beneficial owners or trust that ultimately control the Guernsey entity by means other than ownership. This would include instances where, for example, a person holds more than 25% of the voting rights of a Guernsey entity but the exercise of such voting rights is controlled by another. This latter person is a beneficial owner in respect of the Guernsey entity.

If, in relation to a Guernsey entity, there are natural persons who satisfy Test 2 in addition to natural persons or corporate beneficial owners that satisfy Test 1, all are registrable in respect of that Guernsey entity.

Test 3: management test

Test 3 applies only if no registrable owners have been identified under Test 1 or Test 2. It stipulates that all natural persons who hold the position of senior managing official of the Guernsey entity will be registrable as a beneficial owner. No definition is provided for 'senior managing official', but guidance suggests that directors would be included.

Joint arrangement test

If there are a number of persons who individually would not satisfy the ownership or the control test but together do, and there is a joint arrangement in place whereby those persons have agreed to exercise their rights jointly, all of those persons will be registrable as beneficial owners in respect of the Guernsey entity. In such cases, these persons will be registrable under the conditions of Test 1 or Test 2 (as applicable) and thereby negate the need to consider Test 3.

What if trustees of a trust own a Guernsey entity?

There are additional formalities where the Guernsey entity is owned or controlled within a trust arrangement. In such cases, the beneficial owners of the Guernsey entity will include all of the following that apply:

  • a beneficiary (if the trust is a fixed trust);
  • any trustee who is a natural person;
  • any trustee that is a Guernsey corporate (together with its directors or persons of equivalent position);
  • the natural persons who would be the beneficial owners of a non-Guernsey corporate trustee if that trustee were a Guernsey entity (together with its directors or persons of equivalent position);
  • any person who, under the terms of the trust, has the power to:
    • appoint or remove trustees;
    • direct the distribution of funds or assets of the trust;
    • direct investment decisions;
    • amend the trust deed; or
    • revoke the trust deed; and
  • any person that the resident agent of the Guernsey entity knows or believes is exercising control over the trust.

Nominee and bare trust relationships are ignored in respect of the ownership of shares in a Guernsey company – in these cases, ownership is determined by ascertaining for whom the bare trustee holds the shares.

It is unclear under the regulations what the position is if a non-natural person has any of the powers listed above. However, it can be assumed that the registrable persons in respect of such entity would be registrable in respect of holding that power over the trust.

Who must report to the registrar?

The resident agent of the Guernsey entity must take reasonable steps to ascertain the identity of beneficial owners in accordance with the provision set out above. In most instances, the resident agent will already have this information, but in more complex structures, further investigation may be required.

Further, where a resident agent has reasonable grounds for believing that a person may be a beneficial owner of a Guernsey entity, they must serve a notice on that person requiring that person to state whether they are a beneficial owner and, if so, to confirm any relevant particulars or supply missing data. The requirement to serve a notice will be negated only if the resident agent has been informed of a person's status as a beneficial owner (with that person's knowledge).

In practice, the requirement is likely to be most problematic when a resident agent has reasonable grounds to believe that a particular person may be a beneficial owner on the grounds of control of the Guernsey entity by means other than ownership (ie, Test 2).

Once the resident agent has identified all beneficial owners in respect of the Guernsey entity, it must report these to the registrar and record the particulars of the owners in a record of beneficial owners to be kept at the registered office of the Guernsey entity. Unlike annual returns, the resident agent must keep the record of beneficial owners up to date on a continuing basis and must notify the registrar of any changes within 14 days.

What must be reported to the registrar?

In respect of all natural person beneficial owners, the register must include the individual's:

  • name;
  • nationality;
  • date of birth;
  • principal residential address;
  • date of becoming a beneficial owner; and
  • grounds for being a beneficial owner.

A beneficial owner must update the resident agent within 21 days of a change in any of these particulars.

If the beneficial owner is a corporate beneficial owner, the name of that entity must be reported.

If the resident agent has ascertained that there are no beneficial owners in relation to a Guernsey entity, this must be recorded in the register.

A beneficial owner who, without reasonable excuse, fails to comply with their obligations under the law is liable to a civil penalty of up to £20,000. A resident agent who fails to comply with its obligations – unless that resident agent can demonstrate that it took all reasonable steps to attempt to comply – is guilty of an offence (with criminal penalties and sentences of imprisonment of up to two years) and is liable to a civil penalty.

Any person who provides false or misleading information to the registrar for the purposes of the register is guilty of an offence, with criminal penalties and sentences of imprisonment of up to two years. Where a legal person is found guilty of this offence, an officer who consented to – or, through negligence, enabled – the offence will also be guilty of the offence.

It should be noted that the civil penalties under this law do not apply to regulated entities on the basis that the Guernsey Financial Services Commission already has wide powers of supervision.

Who has access to the register?

It has always been the intention that the register would remain inaccessible to the public; in fact, the States of Guernsey have gone to great lengths to limit its accessibility. Data received by the registrar in accordance with the law will be centralised and retained in electronic format, but on a closed system; as such, access to the information will require access to the physical building in which the server is held. Further, the number of people with authority to access the data will be limited and, even with such authority, the search parameters controlling access will ensure that only specific and detailed requests from law enforcement agencies will gain any benefit from the register.

It is hoped that the limited means of accessing the register will reassure both the Guernsey financial industry and its clients worldwide that Guernsey remains at the forefront of regulatory controls without compromising on data protection and privacy.

For further information on this topic please contact Chris Hards at Ogier by telephone (+44 1481 721 672) or email (chris.hards@ogier.com). The Ogier website can be accessed at www.ogier.com.

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