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Beneficial ownership checklist: Are you PSC ready?

March 26th, 2016 - Posted by Mark Dunn in Anti-Bribery And Corruption, Anti-Money Laundering

The Small Business, Enterprise and Employment Act 2015 will come into force in the UK from 6 April 2016, requiring all UK registered private companies to produce and maintain a list of the individuals who have significant control over the company in a 'Persons of Significant Control (PSC) register'. What do companies need to do to prepare for the impending implementation date, and what is the outlook is for the new ultimate beneficial ownership (UBO) register?

The regulatory landscape for know your customer (KYC) professionals continues to become more complex, as national, trans-continental and global entities move towards building a standardised international framework to combat financial crime

The risk of tax evasion, money laundering and terrorist financing is increased with complex corporate structures, and new rules on beneficial ownership registration aim to reduce opportunities to illicitly transfer money through networks of companies deliberately created to hide the details of the ultimate beneficiary.

Action required

The Small Business, Enterprise and Employment Act 2015 – which has been developed in concurrence with the European Union (EU) Fourth Money Laundering Directive – will come into force in the UK from 6 April this year.

The new legislation is the UK Government's implementation of the 'G20 High Level Principles on Beneficial Ownership Transparency' agreed by G20 leaders at the 2014 Brisbane summit.  The G20 principles, built on the FATF recommendations from 2003, covered the following elements:

  1. The definition of a beneficial owner
  2. Risk assessments relating to legal entities and arrangements
  3. Beneficial ownership information of legal entities
  4. Access to beneficial ownership information of legal entities
  5. Beneficial ownership information of trusts
  6. Access to beneficial ownership information of trusts
  7. Roles and responsibilities of financial institutions and businesses and professions
  8. Domestic and international cooperation
  9. Beneficial ownership information and tax evasion
  10. Bearer shares and nominees

Under the Small Business, Enterprise and Employment Act 2015, UK companies and limited liability partnerships that are not publicly traded are required to produce a statement identifying the individuals who have significant control over the company.

From 30 June 2016, companies will need to include this information in a 'confirmation statement' to Companies House, which will replace the previously required 'Annual Return'.  The new register aims to ensure the UBOs – those with actual control over the company – are identified and visible to the public.

Are you a PSC?

A person with significant control of a company will meet, as a minimum, one of the following conditions:

  1. Holds more than 25% of the nominal share capital
  2. Controls more than 25% of the votes
  3. Controls the appointment or removal of board members
  4. Exercise, or have the right to exercise, significant influence or control
  5. Exercise, or have the right to exercise, significant influence or control over any trust or firm (which is not a legal entity) which has significant control (under one of the four conditions above) over the company.

The Act contains detailed provisions on interpretation of the conditions, and the government has provided non-statutory guidance for their practical application.  Companies will now need to focus on implementing effective internal processes to enable them to adhere to the new legislation and maintain a comprehensive register over time.

The PSC register in practice

The objective of the legislation is to move beyond a simple register of shareholders and instead create a public record of anyone that exercises control over a company.  As such the PSC register could, in many cases, look significantly different to the register of shareholders and provide a more transparent overview of the UBO of a company.  A company's PSC register will have to be available for public inspection and will searchable via Companies House.

The beneficial ownership outlook

Individual countries such as the UK are making significant progress with the issue of UBO, but until a global standard is adopted, financial institutions and businesses need to ensure that they comply with best practice to minimise the risk of being embroiled in corruption, and the associated adverse regulatory and reputational damage.

Businesses, particularly those that are involved in the transfer or facilitation of large sums of money on a global basis, need to ensure they conduct a thorough and ongoing due diligence process and procedure to minimise the risk of being an accessory to bribery, corruption or money laundering. If there are any doubts as to a customer or supplier's true identity, as the UK Government advises: "You must not continue to deal with them until you are sure."Third party screening

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