This year the UK government has introduced, updated and consulted on various measures to make the identity of those investing in the UK more transparent. Some, but not all, of these have been introduced to comply with the EU Fourth Money Laundering Directive (2015/849) (MLD4), which member states had to implement by 26 June 2017. (For a general overview of MLD4 see MLD4: Here at Last: What does it Mean?.) This note summarises these developments, and considers how they may affect financing transactions.

Amendments to the "people with significant control" regime (the PSC Regime)

The PSC Regime was launched in April 2016 to provide greater transparency on who ultimately owns UK corporate entities. Entities subject to the PSC Regime, which include most UK companies and all UK LLPs (PSC Entities), must keep a register of their ultimate owners. For a summary of the original form of PSC Regime, see What impact will the PSC Register have on banking transactions?.

The Information about People with Significant Control (Amendment) Regulations 2017 came into force on 26 June 2017, amending the PSC Regime to bring it in line with MLD4 . The main changes were:

  • PSC Entities must now update their own PSC Registers within 14 days of receiving confirmation of any relevant changes in information. Those PSC Entities not keeping a public PSC register must then record those updates at Companies House within another 14 days. Previously, PSC Entities only had to file updates at Companies House at least once ever 12 months.
  • UK AIM listed companies are no longer exempt, and so must keep a PSC register. (A separate statutory instrument has also brought Scottish partnerships partially within scope.)

The main significance of the PSC Regime from a transactional perspective remains the risk that shares subject to transaction security could be, or become, subject to a "restrictions notice". This could restrict or prevent a lender from enforcing its security over the shares (although a PSC Entity must "have regard to the effect of the notice on the rights of third parties" when issuing a restrictions notice). To address this risk, in November 2016 the LMA added a new undertaking and condition precedent to its recommended forms of leveraged finance and real estate finance facility agreements about the Obligors' compliance with the PSC Regime. These have now become market standard on finance transactions involving security over shares issued by UK companies.

HMRC trusts register

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 also came into force on 26 June 2017 as part of the UK implementation of MLD4. Regulation 45 requires HMRC to keep a register of "taxable relevant trusts". An express UK or non-UK trust will be a taxable relevant trust during any year in which its trustees are liable to pay any specified UK taxes (including income tax, capital gains tax and stamp duty land tax) on the assets or income of the trust. This should exclude, for example, any security trust in a syndicated loan transaction and any express turnover trust in an intercreditor agreement or guarantee. These types of trust do not generally generate a UK tax liability.

For trusts within scope, the trustees will need to provide various information to HMRC each year. This includes details of the trust's settlor, trustees and beneficiaries, and a statement of account describing the trust assets and their values. For existing trusts, the first deadline is 31 January 2018.

However, unlike the PSC Regime, the trusts register will not be open to the public, and a failure by trustees to provide information to the trusts register when required will not affect the transferability of any trust asset. So its introduction is likely to have a less significant direct impact on financing transactions than the PSC Regime.

Proposed beneficial ownership registers for overseas investors

In April 2017, the UK government also launched a consultation on introducing a beneficial ownership register for overseas companies that own UK property or participate in UK government procurement. This goes beyond anything MLD4 requires. If introduced, it would be the first of its type in the world. For a general summary, see Property ownership by overseas investors: UK government begins consultation process for Beneficial Ownership Register.

Broadly, the government intends this register to work in a similar way to the PSC Regime, with Companies House administering it and information on it made publicly available. Importantly, the consultation paper also proposed that if an overseas property owner fails to comply, its UK properties will become subject to a Land Registry restriction, preventing it from selling, leasing or mortgaging them while it is in breach. This echoes the restrictions notice mechanism in the PSC Regime, with one important difference: the consultation proposed that a Land Registry restriction would be automatic following default. By contrast, the issue of a restrictions notice on shares under the PSC Regime is just an optional tool a PSC Entity can use to help it get information.

The consultation paper recognised that restrictions could unfairly prejudice third parties and proposed that they would not prevent a "legitimate lender" from enforcing security over an affected property. Nevertheless, this feature of the proposed overseas investor register will be one lenders will need to keep under review as the government progresses this initiative.