The Government has recently announced a new world-first public register that will require overseas companies that own or buy property in the UK to provide details of their ultimate owners (https://www.gov.uk/government/news/world-first-register-to-crack-down-on-criminals-laundering-dirty-money-through-uk-property-market-to-go-live-by-early-2021).
The stated objective is to provide government with greater transparency on overseas companies and to crack down on money laundering activity. The aim is to make it harder to use shell companies and complicated off-shore holding structures to hide criminal proceeds and make it easier for law enforcement agencies to track criminal funds.
The announcement follows on from the call for evidence announced by BEIS in April 2017 (see our earlier update). The register will have a significant impact for everyone involved in UK property transactions.
Impact for Investors
The stated intention is that the register would be held at Companies House and publicly accessible without charge. All overseas entities that own or buy UK property will have to supply beneficial ownership information to Companies House and apply for a registration number. A restriction will be placed on the title register for the property and until the overseas company receives its registration number, it will not be able to buy, sell, grant a charge or create a long lease of the property.
The required information for the register is likely to be in line with the requirements of the PSC regime.
Impact for Financiers
As with the PSC register, lenders are likely to incorporate provisions in loan agreements addressing the risks of non-compliance with the regime.
For new financing transactions, it will not be possible to take security over a property unless the overseas owner is at that time in compliance with the regime. This will need to be addressed through the conditions precedent.
For existing financings, BEIS has indicated that it is alive to the need to protect lenders' ability to enforce security and sell a property if the overseas entity fails to comply with the regime. The protections for lenders' in the proposed legislation will need to be carefully considered.
Timing and implications
The Government has committed to publish a draft bill this summer and introduce it to Parliament next summer (2019). Following legislation the register would go live by early 2021.
The Government has indicated that there would be a one year transitional period during which time overseas companies that currently own property have to comply with the register requirements.
The Government is proud that this is a world first and forms part of the initiative to help protect the integrity and reputation of the property market and to fight financial crime and money laundering activity. The Government has indicated that, as with the PSC regime, there will be circumstances where beneficial owners may have their personal information suppressed if otherwise there is a risk or violence or intimidation. Questions remain whether legitimate concerns for confidentiality and privacy can be protected and whether the regime will make the UK property market less attractive to overseas investors? Adding to information that is publicly available may make fraud and other types of financial crime easier to perpetrate. One way to address this would be to consider making the register only available to certain government bodies; rather than being a public register. The Government indicated that it will publish its response to last year's call for evidence shortly; which should help to build a clearer picture of the detail of the regime and its implications.