Background
The Economic Crime and Corporate Transparency Act 2023 (“2023 Act”) received Royal Assent on Thursday 26 October 2023 and is a successor to the Economic Crime (Transparency and Enforcement) Act 2022. Both Acts are part of the Government’s aim to tackle economic crime and increase corporate transparency.
Although the 2023 Act is now law, the changes will not take effect immediately. Instead, they will be rolled out over the course of a year or more through a series of commencement orders under a government implementation timetable.
The 2023 Act introduces a number of changes that will specifically affect the Real Estate Finance sector and which we will discuss below.
Overseas Entities Register
The Economic Crime (Transparency and Enforcement) Act 2022 (the “2022 Act”) established the Register of Overseas Entities (the “Register”). The 2022 Act brought into effect certain requirements on an overseas entity (“OE”) who owns land in the UK to place themselves on the Register, held at Companies House, and make annual filings. The 2022 Act also contained complex provisions to ensure that details of certain beneficial owners, that met beneficial ownership conditions under that regime, of OEs were to be disclosed to the Register (as registerable beneficial owners or “RBOs”).
For a refresh and considerations on the Register as implemented by the 2022 Act, I refer you to my colleague Samir Younes' article published in October 2023 linked here.
The 2023 Act will bring in a key change to the reporting requirements for the Register. Under the 2022 Act, there was a recognised loophole where details of “true” or ultimate beneficial owners of OEs, especially where nominees or trust structures are in place, were not required to be included on the Register. The 2023 Act attempts to close this loophole by expanding the scope of certain RBOs in the scenarios highlighted below.
Persons or entities for whom OEs hold UK land interests as nominees
The 2023 Act amends the 2022 Act by widening the scope of RBOs to include ultimate beneficial owners in scenarios such as where an OE holds a qualifying estate as nominee for another person or entity, any person or entity who is a beneficial owner of that person or entity, and meets the beneficial ownership conditions in the 2022 Act, will also qualify as an RBO of that OE and therefore their details will need to be included on the Register.
All corporate trustees will be OEs
Currently under the 2022 Act, a legal entity beneficial owner of an OE will only be a RBO if it is “subject to its own disclosure requirements”. The 2023 Act, removes this provision and now any beneficial owner of an OE which is a corporate trustee, that meet the beneficial ownership conditions in the 2022 Act, will be an RBO.
There are also a number of other changes that the 2023 Act introduces that are not specific to Real Estate Finance but will however be relevant to the wider financing arrangements , real estate borrowing entities and lenders KYC requirements as detailed below.
Companies House and corporate changes
The 2023 Act also includes provisions to enhance the role of Companies House and to make UK corporate entities more transparent.
The new measures will apply to all corporate bodies caught by the disclosure requirements of the Companies Act 2006.
Enhanced powers for Companies House
The 2023 Act gives more power to the Companies House Registrar. The Registrar will be able to query or reject filings, request further information be provided in relation to filings, remove information already on the register in some cases and share information with other government departments and law enforcement agencies.
The aims of these enhanced powers are to improve the accuracy of Companies House data, to support business decisions and law enforcement investigations.
Identity checks by Companies House - PSC and Directors
The 2023 Act introduces mandatory identity verification for all directors and persons with significant control (“PSC”).
An individual will be unable to become a director of a UK company unless their identity has first been verified. It will be impossible to incorporate a new company unless its initial directors have been ID-verified.
Individual PSCs will also be required to verify their identity. A PSC that is a legal entity (“RRLEs”) will be required to nominate one of its managing officers who is an individual and whose identity is verified (this means an RRLE will be required to have at least one managing officer who is a natural person).
It is expected that an individual will be able to verify their identity through a central facility provided by Companies House.
Verification of documents delivered to Companies House
The 2023 Act introduces a new requirement for anyone seeking to make filings on behalf of a UK entity to be first authorised by Companies House, the Registrar.
Currently, certain documents to be delivered to Companies House must be signed by specific persons. However, anyone is able to deliver documents to Companies House.
Under the 2023 Act, only ID-verified individuals and authorised corporate service providers (“ACSPs”), who are authorised by the Registrar, will be permitted to deliver documents. ACSPs will include company secretaries and other third party suppliers e.g. legal and accounting firms.
Any new security granted by a UK entity, including security over property, that is required to be registered at Companies House will only be able to be delivered the Companies House by these ID-verified individuals or ACSPs.
Certain registers currently held on company books to vanish
The 2023 Act will remove the requirement for companies to keep four internal registers in their company books:
- Register of directors
- Register of directors’ residential addresses
- Register of secretaries
- PSC register
Instead, companies will simply file details of their directors, secretaries and PSCs at Companies House. The general public will be able to rely on this central record.
Implementation
It is likely that changes introduced by the 2023 Act will be implemented in a piecemeal basis over the course of the next year. We understand that the Government will release more detail in due course.
This article was written by Banking and Finance associate Emily Cranston.