The Register of Overseas Entities – important developments

Recap

The requirement for the Registrar of Companies to maintain the Register of Overseas Entities (the Register) is created by s. 3 of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act). 

Any overseas entity that owns or intends to buy UK property will have to take reasonable steps to identify its "registrable beneficial owners" and submit details to Companies House to put on the Register.

New land registration requirements will see restrictions being placed on titles owned by overseas entities.  These will stop transactions being registered where an overseas entity is in breach of the new rules.

The UK Government made it clear that it intended to expedite introduction of the Register, which aims to tackle the use of illicit finance in the UK property market, as a key part of its broader agenda to reform economic crime laws in the wake of Russia's invasion of Ukraine.

The Act became law on 15 March 2022 but s. 3 is not yet in force.  We have already described the key provisions of the Act (view here) and considered the essential features of the Register (view here).

Timing

Companies House announced in a recent blog post (view here) "We expect the commencement order to be laid on 1 August, and our intention is that the register will come into effect on the same date."  A similar announcement was made by HM Land Registry (view here).

The announcements reflect comments made by Lord Callanan (Parliamentary Under Secretary of State at the Department for Business, Energy and Industrial Strategy) who told the House of Lords on 12 July 2022 "I hope we can bring the register live on 1 August. That is the intention."

Update: On 22 July 2022, Companies House announced that the land registration elements of the Act are expected to come into force on 5 September 2022 noting ‘this will allow time for those currently engaged in a relevant land transaction to comply with the requirement to register with Companies House and obtain an Overseas Entity ID number before making an application to the land registry.’ It is good news for buyers of UK property who are overseas entities who will now have a slightly longer period in which obtain their overseas entities ID before they are required to use it in order to be able to make an application to become a registered proprietor of a freehold or leasehold estate at the Land Registry.

Secondary legislation

In June, the government published three statutory instruments containing important provisions in relation to the operation of the Register.  These are:

• The Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 (Draft) (view here);

• The Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 (SI 2022/725) (view here); and

• The Land Registration (Amendment) Rules 2022 (SI 2022/730) (view here).

Each of the instruments will come into effect on the date on which s. 3 is brought into force.

What we know

The first instrument does three things:

• it requires documents delivered to the Registrar to be delivered by electronic means;

• it sets out the circumstances in which the Registrar of Companies is able to withhold information from public inspection; and

• it specifies when a legal entity will be "subject to its own disclosure requirements" for the purpose of identifying a "registrable beneficial owner" of an overseas entity under para. 3 of sch. 2 of the Act (which is of relevance to trust companies).

The second instrument specifies the persons able to verify information provided to the Registrar.  Importantly, it limits the categories who are empowered to do so by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) in a manner that is likely to shift focus onto credit and financial institutions and professional advisers.

The third instrument amends the forms used to register dispositions at HM Land Registry.  For example, it amends form CH1 (Legal charge of a registered estate) by requiring a borrower which is an overseas entity to specify its territory of incorporation or formation and to provide its overseas entity ID.

What we don't know

The three statutory instruments will enable the launch of the Register but much that is important to third parties who deal with overseas entities (especially those who lend money to them on the security of UK land) remains unspecified.

The Act creates a safe harbour for lenders exercising a power of sale or leasing conferred either on them or on a receiver appointed by them.  It also creates a safe harbour for a disposition made by a "specified insolvency practitioner" in "specified circumstances" but those terms are undefined because the relevant statutory instrument has not yet been drafted.

Lord Callanan acknowledged the need for further secondary legislation to be made when he told the House of Lords on 12 July 2022 that "some further instruments necessary to underpin the register's steady-state operation ... will be made in the autumn."

Verification issues

As noted, The Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 requires information to be provided to the Registrar to be verified.

Amongst those who will be able to undertake this role are "credit institutions", "financial institutions", "auditors, insolvency practitioners, external accountants and tax advisers", "independent legal professionals" and "trust or service company providers".

Section 32(1) of the Act makes it a criminal offence for a person, without reasonable excuse, to deliver or cause to be delivered to the Registrar any document that is misleading, false or deceptive in a material particular or to make to the Registrar any statement that is misleading, false or deceptive in a material particular.

The drafting of the relevant instrument raises a number of questions about the verification process.  Given the criminal sanctions involved, what appetite will there be amongst "relevant persons" to undertake the role?  In the case of professional advisers, will verification fall within the scope of professional indemnity insurance?  What guidance might UK professional bodies give to their members?

Conclusion

According to the Government, the Register will launch on 01 August 2022.  This is the date on which the six month transitional period will commence.  For its importance, please see the final paragraphs of our earlier article (view here).

Given the steps required to prepare applications to be registered, action is required now to ensure that overseas entities are able to meet the deadline for registration.