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Bringing PSC non-compliance under control

03 September 2018 by Ben Harber and Kathy-Ann Pearce

Bringing PSC non-compliance under control

Following developments in the PSC regime, Companies House is focusing its attention on non-compliance

Companies House has turned the spotlight onto the rules governing the transparency of ownership and control, with the consequence that any deliberate or mistaken non-compliance will be highlighted for further action. This article serves as a timely reminder of the requirements of the ‘people with significant control regime’ (PSC regime) as well as some of the pitfalls.

Companies House business plan

Two years on from the PSC regime coming into effect, Companies House published its 2018/19 business plan on 5 April 2018. The plan has a particular focus on the PSC regime and identified a number of areas for improvement.

The business plan states that Companies House will:

  • Contact companies where it believes they have misunderstood the requirements, to ensure that the records are corrected and that they comply with their legal requirements
  • Pursue companies that have not provided PSC information in their confirmation statement or that have not provided a statement of additional matters
  • Follow up with companies and PSCs where they have issued notices to their PSC (asking the PSCs to provide them with information), or restrictions (where a PSC has failed to provide information), to ensure they update the information on their company records
  • Seek compliance from companies where there has been a complaint about missing or incorrect PSC information
  • Develop data and intelligence sharing gateways with law enforcement and other government departments to ensure that information is shared correctly and to support the tackling of economic crime
  • Work with The Insolvency Service criminal enforcement team to investigate non-compliance.

The business plan aims to address the operational and support needs of UK businesses and will explore potential areas of growth and ease for utilisation of data, with the PSC regime being a major source of such data. The intention therefore is to instil an effective level of transparency of company ownership and control.

Further, the government announced that in 2019, it plans to conduct a review of the effectiveness of the PSC register. In light of both these developments, a brief review of the scope of the PSC regime, the correct information for recording in the PSC register and the consequences for failure to comply with the PSC regime, would be prudent.

Scope of the regime

Part 21A of the Companies Act 2006 applies to all companies, other than:

  • A company that has voting shares admitted to trading on a regulated market which is situated in an EEA (European Economic Area) state
  • A company that has voting shares admitted to trading on any of those markets in Israel, Japan, Switzerland or the US, as specified in Schedule 1 (List of Markets) to the Register of People with Significant Control Regulations 2016 (SI 2016/339) (PSC regulations).

Following the incorporation into UK law on 26 June 2017 of the Fourth Money Laundering Directive (4MLD), there had been some changes to the initial PSC regime. All companies that were regulated by the FCA, and were therefore subject to the Disclosure Rules and Transparency Rules, had been exempt from the PSC regime. Although 4MLD expressly exempts companies admitted to trading on a regulated market, AIM and other smaller exchanges are not defined as regulated markets and companies listed on these markets therefore became subject to the PSC regime. The consequence is that these companies are now required to keep and maintain a PSC register.

Other types of companies brought into the PSC regime for the first time following 4MLD were Scottish limited partnerships, certain other qualifying Scottish partnerships and UK unregistered companies.

In addition, the requirement to register with Companies House any changes in the PSC register, which was previously done on an annual basis via the Confirmation Statement (CS01), must now be done within 28 days of the change. This is a key change that companies ignore at their own risk.

“The register, once created, can never be blank, even if a company has no registrable PSCs or RRLEs”

Entities that are not required to keep a PSC register include: open-ended investment companies; overseas companies (as defined by section 1044 of the Companies Act 2006); any other overseas entities; cooperative and community benefit societies; friendly societies; charitable incorporated organisations; and charity trustees incorporated as a body corporate.

Information to be recorded

The company’s own PSC register must provide information about any individual who exercises ‘significant control’ over the company. This means individuals who ultimately own or control more than 25% of the company’s shares or voting rights; who can appoint or remove a majority of the board; or who otherwise exercise significant influence or control over the company, must be identified on the register.

The legislation also requires a company to record the required particulars of relevant registrable legal entities (RRLEs) that would hold significant control if they were individuals.

A PSC register, once created, can never be blank, even if a company has no registrable PSCs or RRLEs. The fact that none exist must itself be recorded.

Consequences of non-compliance

Failure to comply with the PSC requirements carries criminal penalties and can result in a fine and/or a prison sentence of up to two years. As yet there have been no high-profile cases involving the severest of penalties as companies have largely welcomed the greater transparency and ability to tackle money laundering that the new regime brings. Whether the greater focus on these rules and the tightening up of the requirements will result in more penalties being imposed remains to be seen.

Looking to the future

The legislation for registering PSCs was intended to give greater transparency in the ownership and control of UK companies and to help in the fight against money laundering. The fact that Companies House intends to actively monitor non-compliance is positive.

Save for the simplest of ownership structures, however, Companies House will need to consider the impact of the PSC register on disclosure requirements of large UK companies and overseas parent companies, especially those not currently listed on a market set out in Schedule 1 of the PSC regulations.

More guidance and perhaps broadening Schedule 1 to include other markets, such as Australia, would assist organisations in completing their PSC register. It is not simply a concern about the information being made public but the burden on those entities to determine their ownership structures and the potential ramifications if a company does not locate/notify a registrable person.

It is therefore a good time for a review of the application and impact of the PSC regime on businesses, with the aim of ensuring compliance but also providing further assistance and streamlining its processes and application. As Companies House and the government carry out their own appraisal of the regime and fill in any gaps, we should also take this opportunity to review internal procedures and ensure full compliance with the PSC regime.

Ben Harber FCIS is a partner and head of company secretarial services, and Kathy-Ann Pearce GradICSA is a company secretary, both at Shakespeare Martineau

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