New requirements for the disclosure of beneficial owners of companies have come into effect across the EU. The last-minute implementation in some countries and differences in timing of the filing obligations across the EU add to the complexity of the compliance task for large corporate groups with a pan-European presence and for the private equity owners of European portfolios, who must not only determine which corporate entities or ultimate beneficial owners must be registered in which subsidiaries, but also juggle differing timetables for compliance.
The EU Fourth Money Laundering Directive requires the public disclosure of the beneficial owners of companies and other legal entities, with a similar regime for trusts. The requirements will have an impact on large corporate groups and millions of companies across Europe generally, as well as investors and holding companies located inside and outside the EU.
In brief, the requirements under the Directive are:
- Companies and other legal entities must obtain and hold adequate, accurate and current information on their beneficial owners, including the name, date of birth, place of residence, and nature and extent of beneficial ownership.
- Information on beneficial ownership will be held on central registers in the relevant country and must be adequate, accurate and current.
- Information on the central registers will be accessible to competent authorities, financial intelligence units, entities required to undertake customer due diligence and any person that can demonstrate a “legitimate interest”.
Under the Directive, a “beneficial owner” means any natural person who ultimately owns or controls the company and includes, in the case of a corporate entity:
- a natural person who ultimately owns or controls the company through direct or indirect ownership of more than 25% of the shares or voting rights or ownership interest, or through “control via other means”; or
- if no one is identified (having exhausted all possible means and provided there are no grounds for suspicion) or if there is any doubt that the person so identified is the beneficial owner, then the natural person who holds the position of “senior managing official”.
In our 2016 publication, ‘Global Transparency: Navigating the disclosure of corporate ownership’, comparing different regimes around the world and the political and economic drivers, we highlighted the risk that some EU countries may not have the necessary legislation in place by June 2017.
That prediction has turned out to be correct, although not many would have anticipated then a UK general election delaying the UK government as well (with the amending UK legislation being published only a few days before the implementation date).
Some jurisdictions will implement the Directive at a later date, such as Austria (where the legislation is anticipated to take effect in January 2018).
Amongst those countries that have implemented the legislation on time, there are differing timetables and transitional arrangements with the result that companies have some time before filings actually must be made. For example, in Germany, legal entities and registered partnerships have to collect and notify the necessary information to the competent authority by 1 October 2017. In France, existing companies will have to comply with the filing obligations by 1 April 2018, but companies incorporated on or after 1 August 2017 will have to comply immediately. In the Netherlands, the information must be filed within 18 months of the legislation becoming effective.
The UK had previously implemented most of the requirements in April 2016, through the register of persons with significant control (the “PSC register”), but some changes were still needed to ensure the UK regime fully complies with the Directive:
- UK companies on the AIM Market must keep a PSC register, in addition to their obligations under the AIM Rules and the FCA’s Disclosure Guidance & Transparency Rules.
- Whilst AIM companies must start taking reasonable steps to identify any registrable person with significant control (“PSC”) or relevant legal entities now, the obligation to keep and maintain the PSC register starts on 24 July 2017.
- Companies must update their own PSC registers within 14 days after the date on which the details were confirmed (in the case of PSCs) or 14 days after the date on which the company first has the details (in the case of relevant legal entities). Companies must now update the central register at Companies House within 14 days after the date on which they make the change in their own register. Previously, the central register was only updated annually.
- Under transitional provisions, filings need to be made at Companies House by 9 July 2017 (or if later within 14 days after confirmation of the change), if any changes have been made to the PSC register since the last annual confirmation statement.
The new disclosure obligations carry a range of sanctions and penalties and need to be taken seriously. Analysing who needs to be registered and the steps that need to be taken can be a complex exercise, although experience gained from the UK’s PSC regime will, no doubt, help.
With our experts in 33 offices around the world, based in locations at the heart of the world’s most dynamic industries, Taylor Wessing is ideally placed to help you navigate these issues.