Emerging Legislative Trends for Beneficial Owners’ Register

Crown territories and other off-shore jurisdictions were not inclined to enact legislation on disclosure of beneficial owners (the “BO”) of certain legal and other entities. However, they came under relentless pressure of United Kingdom (UK) and other international bodies forcing them to take steps to bring relevant legislation.  However, the legislation passed by these jurisdictions have few loopholes which have the potential to undermine the effectiveness of the disclosures. In this paper we examine the trend-setting legislation of UK and not-so-effective legislation of Cayman Island and Singapore.

UK was one of the first jurisdictions to implement beneficial owner register requirement from April 6, 2016. The UK legislation on the BO register is onerous both on the company and the beneficial owners (categorized as Person of Significant Control (PSC)). The main features of the UK legislation are that only individual can be a BO, the register is kept centrally by the Company House, both the BO and the company have obligations towards maintenance and update of the register information, covers companies as well as limited liability partnerships, punitive provisions are very strong and apply both to the BO and the directors and provides for restricting the rights of the shareholders, and the register is open to public. The exemption is limited to listed companies and companies subject to Financial Conduct Authority’s Disclosure and Transparency Rules.

Cayman legislation on BO register is on similar lines as the UK legislation with some exceptions. Only a natural person can be a beneficial owner. At the same time, both the natural person and the intermediate legal entity through which a natural person may have control on another entity are to be registered in the relevant register.

Though, no central registry of the beneficial owners is proposed, still the competent authority will have direct access to the BO register.  Cayman legislation has enhanced the role of the corporate service providers (CSP) by mandating that the BO register has to be established and maintained by the CSP. The responsibility to identify the BO, seeking confirmation and collecting the BO’s relevant information has been put on the company i.e. its directors. While the actual act of creating and maintaining the BO register has been given to the CSP on the basis of the written particulars provided by the company. The information on the BO will not be available to public but will only be accessible to competent authority through a searchable platform to be set-up by CSP.

Cayman legislation is strong with regard to punitive provisions, and imposes both fine and imprisonment.   For example, the legislation gives power to the company to put restriction on the shares in case the BO fails to provide or confirm the relevant information sought by the company. A company failing to comply with its obligations can be fined $25000 for each contravention. Similarly, a person who fails to respond to the notices issued by the company or knowingly provides false or misleading information is liable for conviction with provision for imprisonment or fine.

However, the legislation has exceptions which will exclude listed, and licensed companies as well as funds set-up as exempt companies whether licensed or registered from the applicability of maintenance of BO register. Therefore, most funds set-up in Cayman Island whether licensed or registered are excluded from this requirement. Not only this, any company managed, administered, arranged, operated or promoted by a person which is regulated, registered or licensed in Cayman Island is also excluded from complying with the requirement. Further, the legislation does not cover limited partnerships which are used in fund structuring.   

Singapore has also implemented the beneficial owner register provision from March 31, 2017. As per Singapore’s legislation, a BO can be an individual or a legal entity.  The BO register is to be maintained by the company or its filing agent. However, the register is not required to be filed with the company registry. The accessibility of the BO register to the regulatory authority is neither direct nor unhindered. For accessing the BO register, the regulatory authority has to make a request to the company. This process has the potential of creating delay or litigation. Further, the BO register information is not publicly available. With respect to punitive measures, the maximum penalty on the company or its officers and the controllers (i.e. the BO) in failing to maintain the register or update the information, failure to give notices, failure to respond or provide information is $5000. However, there is no provision to put restriction on the shares in case the BO fails to respond to the notice. The new requirement does not apply to listed and licensed companies. Overall the legislation appears to be quite lenient and the punitive provisions lack teeth.

The legislations of most of the countries lie within these three levels. The utility of these legislations will get evaluated in due course on the basis of   the correctness of the information, ease of flow of information and whether the authorities of the countries seeking information get the sufficient level of details to meet their objectives.