Draft Registration of Overseas Entities Bill - Government issues response to Joint Committee Report

The Government has issued its response to the Joint Committee report on the draft Registration of Overseas Entities Bill. Once enacted the Bill will introduce a publicly accessible register of beneficial owners of overseas entities which own property in the UK (the Register). A summary of the Joint Committee’s report (published on 20 May 2019) can be found here and some points of note from the Government’s response to the issues raised by the committee are set out below:

• The Government considers the definitions of "overseas entity" and "legal entity" in the draft Bill to be "sufficiently wide, clear and flexible". There is no suggestion these definitions will be re-drafted but the Government notes it intends to publish "guidance to help" ensure clarity. The Government does not consider a "pre-clearance mechanism" which indicates whether legal entities are registrable is necessary and notes that conveyancers as part of their checks will become aware as to whether or not the entity will fall under the scope of the draft Bill.

• The Committee highlighted the need for reform and sufficient resourcing of Companies House in order effectively to maintain the information on the register. In response, the Government refers to the consultation it launched on 05 May 2019 entitled "Corporate Transparency and Register Reform". However, the Government also notes that the Companies House reforms will take some years to deliver which perhaps sits uncomfortably with the timeframe for the introduction of the Register in 2021.

• The Committee expressed concern that trusts may operate as a significant loophole in relation to the Register. Detailed guidance is promised as to the position of trusts.  

• The Government recognised the need for clarity on how the Register would look and operate but made no mention of a “mock-up” being published to facilitate this, as the Joint Committee had suggested. The response states:

"BEIS will continue to work closely with Companies House, the land registries and other relevant sectors to ensure that all users, including those in the conveyancing profession, will be fully able to use the Register and comply with their legal requirements. Guidance will be published ahead of the operational launch of the regime along with a package of comprehensive communications to those interested parties."

• The Committee also raised the need for ‘true equivalence’ when an overseas entity has registered sufficient information in another country. The Government states that whilst it is still considering "what best constitutes an equivalent register" at a minimum such register must be publicly accessible and signposted from the Register.

• In the draft Bill, a "beneficial owner" includes a beneficial owner who holds more than 25% of the shares or voting rights in an overseas entity owning UK land. Whilst the Government notes this threshold will be kept under review, there does not appear to be any appetite to lower this threshold in accordance with the Committee’s recommendation.

• It is clear neither the Committee nor the Government favour "event-driven" updating of the Register. In line with the Committee’s position, the Government agrees that ‘it is important that the Register is as accurate as possible at the point at which dispositions take place, and will consider further how best to achieve this aim’. The Government notes it is carefully considering the Committee’s recommendation that the clause dealing with the updating duty be re-drafted.

• In terms of verifying beneficial ownership information on the register the Government "welcomes the Committee’s suggestion about the possibility of using “licensed professionals… already bound by AML regulations” to perform checks on clients".

• The Government will consider further the idea of civil penalties, in addition to the use of criminal sanctions, as an alternative means of regulating behaviour.

• Significantly, it remains unclear as to whether any form of appeal process is being considered for those who find themselves unable to register a transaction at the Land Registry where the overseas entity selling the property was not compliant with the registration requirements at the time of the sale.

• The Government has indicated it plans to go ahead with a "Report it Now" function "to ensure users can flag suspicious or potentially incorrect information to Companies House."

Indicating the timetable remains on track the Minister for Small Business, Consumers and Corporate Responsibility (Kelly Tolhurst MP) notes that the Government looks forward to delivering an "operational register in 2021."