It has now been just over a year since the Register of Overseas Entities (ROE) was launched on 1 August 2022 pursuant to the provisions of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA). The ROE was established with the aim of combatting global economic crime by increasing transparency in the ownership of overseas entities (OEs) that hold UK property.
As we discussed in our previous client briefing (see here), ECTEA requires OEs that own a “qualifying estate” (either a freehold interest or a leasehold interest granted for a term of more than seven years) in England and Wales to be registered on the ROE with Companies House and disclose details of the OE’s beneficial owners or managing officers (with some limited exceptions).
A failure to register not only results in restrictions on an OE’s ability to transact with its UK property (including acquiring, disposing, leasing or charging), but it is also a criminal offence punishable by fines and / or the imprisonment of the OE’s officers.
Once registered on the ROE, Companies House will issue the OE with an overseas entity ID number (OEID), which must then be supplied to the Land Registry when the OE seeks to register any applicable transactions with its UK property.
Most of the information on the ROE is publicly available using the search functions on the Companies House website. At the time of writing, there are just over 29,000 OEs listed on the ROE, and the latest blog from Companies House states that the information on the ROE has been searched more than 500,000 times. The Government has indicated that this high number of searches demonstrates that the ROE is helping to increase transparency in respect of ownership of UK property.
Annual updating duty
Unfortunately, an OE’s duties and obligations under ECTEA do not end with registration on the ROE. Each registered OE is also subject to an annual updating duty and must file an update statement with Companies House confirming the information it originally filed is still correct and up to date, even if there has not been any change.
A registered OE must file an update statement within 14 days of the 12-month anniversary of the date of its registration on the ROE (or, in subsequent years, within 14 days after the expiry of the relevant update period). For example, if the OE registered on the ROE on 1 January 2023, its update period is from 1 January 2023 to 31 December 2023 and the OE will have until 14 January 2024 to file its update statement. The first annual statements were therefore due on 14 August 2023 (14 days after the first anniversary of the ROE being launched).
OEs can check their update statement date by searching the ROE. To assist with compliance with ECTEA, Companies House has stated that it will send email reminders about the requirement to file an annual update statement to the email addresses it holds on file for each OE.
How to submit the annual update statement
The update statement can usually be filed online, however there are two notable exceptions:
- If there are trusts involved in the OE’s structure, the OE will need to file a paper form, and
- If beneficial owners or managing officers for the OE have their personal information protected at Companies House, the OE will need to contact Companies House for additional assistance.
An authentication code (which can be requested via the Companies House website and will be provided to regulated agents who satisfy certain criteria to act as such) is required in order to submit the annual update statement online.
As part of the update procedure (and as with the initial ROE registration process), the OE will need to serve an information notice on any known or suspected registrable beneficial owners (RBOs), giving them one month to respond to confirm the position.
Any change to the OE’s information (such as adding a new beneficial owner or changing certain particulars about existing beneficial owners) must be independently verified by a UK regulated agent before being submitted to Companies House. Where verification is required, it must be done no more than three months before the date of the update statement.
It is important to keep these timings in mind to avoid missing the deadline to submit the update statement.
For further information on filing an update statement, please refer to the Companies House guidance which can be found here.
What if an OE does not comply with the updating duty?
Failure to comply with the updating duty invalidates the OE’s registration on the ROE and its OEID will become void. Our understanding is that Companies House will also add a note to the OE’s public record.
In addition to committing a criminal offence and risking a financial penalty (of up to £50,000), the OE’s ability to transact with its land or apply to register an acquisition of new land at the Land Registry will be restricted until it has rectified the situation. Therefore, it is essential for OEs to comply by the deadline.
What about OEs that have already disposed of all their UK property?
Unfortunately, this does not necessarily absolve an OE from its obligation to comply with the updating duty. An OE that has disposed of all of its UK property cannot apply to be removed from the ROE until the registration of its disposal has been completed at the Land Registry.
Any OEs listed on the ROE (including those OEs that remain registered proprietors, while they wait for the Land Registry to duly register the disposal of their UK property) must still comply with the updating duty.
What about enforcement for any breaches of the ROE?
In July 2023, Companies House published guidance on how it intends to approach enforcement (see here). This includes referring OEs to the Insolvency Service and other law enforcement agencies for prosecution and imposing civil financial penalties on OEs. Companies House has stated it intends to start issuing penalties to OEs which have not registered on the ROE or have not complied with their updating duty. Every officer of the OE commits an offence in the case of continued contravention, regardless of their role in the initial offence, which is another reason why it is so important to ensure that all deadlines are met.
Are there any potential amendments to the ECTEA / ROE regime?
The Government’s next set of legislative reforms to combat economic crime, in the Economic Crime and Corporate Transparency Bill (ECCTB), propose several amendments to the ECTEA regime. The ECCTB is in the final stages of the parliamentary process with the draft legislation being considered by both the House of Commons and the House of Lords. Each House can propose, comment on or reject any of the amendments put forward by the other House. The draft legislation passes back and forth until both Houses have agreed the exact wording, after which the ECCTB can receive Royal Assent, which is expected before the end of 2023.
One of the more pertinent amendments to the ECTEA regime proposed in the ECCTB (which, at the time of writing, looks likely to be approved) is to split the existing offence of failing to comply with the obligation to obtain information about RBOs into two separate offences. The changes purport to create a basic offence (punishable by fine only) and an aggravated offence (punishable by fine or imprisonment or both). Which offence is committed will depend on whether a person knowingly makes a false, misleading or deceptive statement or whether such statement is made without reasonable excuse. This distinction will also apply to legal entities.
Another important proposal in the ECCTB is to extend the definition of an OE’s "beneficial owner" to include anyone for whom the OE holds the property as nominee (ie to include anyone who exercises, or has the right to exercise, significant influence or control over the property). A key criticism of the current ECTEA regime is that there is an ostensible loophole, as ECTEA only traces the beneficial ownership of the OE rather than of the property: the ultimate beneficial owner of a property does not need to be disclosed to Companies House (only the beneficial owner of the OE itself). Although the details of the ultimate beneficial owner of the property (as the beneficiary of the nominee arrangement with the OE) must be disclosed to HMRC under the Trust Registration Service, the details of the trust are not then made publicly available.
Certain other proposals in the ECCTB have also been considered but, at the time of writing, appear to have been rejected, such as the inclusion of an obligation for OEs to make event driven filings (ie update the ROE within 14 days of becoming aware of any changes to its RBOs).
We will continue to monitor the progress of the ECCTB and provide further information about its impact in due course.
Although most registrations on the ROE were made several weeks or months after the ROE went live, it is recommended that each OE should now be checking whether there has been any change to the information it submitted to Companies House with its original application, so that the information notices can be served and its annual update statement can be prepared and filed on time in order to avoid the severe and rigid consequences of non-compliance.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, September 2023