There has been a huge global focus on transparency in corporate ownership structures in recent years – it’s seen as a way to shed light on shady dealings and to stop the transferring of profits around jurisdictions in an effort to evade taxes.

One of the ways regulators in Europe are directing that light is through instigating beneficial ownership registers, with many countries in the European Union already requiring such a register to be installed. It was, in fact, part of Brussel’s 4th Anti-Money Laundering directive, and the European Commission set a deadline of 26 June 2017 for the registers to be set up.

The beneficial ownership register – first enacted by the UK in April 2016 and now seen in other EU member states, though many did not meet the deadline – requires every registered private company to create a register of “people with significant control,” and to make that register available to the public. For example, in the UK, the register is noted on each company’s log at Companies House.

It’s best to check the specific requirements for the country in which an entity is registered and must report to, as every EU country enacts an EU directive in a way that best fits the local jurisdiction.

The beneficial owner register regime is in addition to the automatic exchange of information (AEOI) regime and the Financial Action Task Force (FATF), the intergovernmental body that develops and promote policies to tackle money laundering and the financing of terrorism and weapons of mass destruction by the global financial system, in addition to providing guidance on transparency and beneficial ownership.

What Is a Person With Significant Control?

A “beneficial owner” or “ultimate beneficial owner” is a natural person who enjoys the benefits of ownership of an asset, even if the title to the property owned is marked with another name. In the world before the beneficial ownership register, a company or trust could own an asset, such as a piece of real estate, but the ultimate beneficiary of that asset – or the person who owns and benefits from the earnings – was unknown.

That beneficial owner, the person who controls the assets, could remain behind the scenes through setting up anonymous companies or trusts in jurisdictions that do not require a beneficial owner register, or by hiring nominees or proxies to sign legal papers. This, of course, opens the doors to possible corruption, money laundering and other illicit financial practices, as seen in recent leaks such as the Panama Papers and the Paradise Papers, which showed the myriad ways in which the rich can exploit secretive offshore tax regimes.

And so, the beneficial ownership register looks at someone who owns or controls the company; these are called “persons with significant control,” or PSCs.

The Beneficial Ownership Register: What Is It and What Do You Have to Do?

Step One: Identify Your PSCs

It seems like an obvious first step, but work out who your persons with significant control are. To be a PSC, it’s likely they hold:

  • More than 25% of shares in the company
  • More than 25% of voting rights in the company
  • The right to appoint or remove the majority of the board of directors

Start by looking at the company’s register of shareholders, the constitution and the articles of association.

If a trust or other company meets the above criteria, then any person who controls that trust or firm is a PSC of your company. In these instances, it’s best to seek professional advice before logging the beneficial ownership register.

Step Two: Record the Details of Any PSC

Every registered company must have a beneficial ownership register that identifies any person with significant control. Record the details of these people on your company’s register, and log it with the appropriate regulator in your jurisdiction (e.g., Companies House for the UK).

You will need to confirm and log certain details for each PSC, and each country will have slightly different requirements. Staying with the UK example, you will need to log:

  • Name
  • Date of birth
  • Nationality
  • Country of residence
  • Service address
  • Usual residential address (this is not displayed to the public)
  • The date they became a PSC of the company
  • The date you entered them into the PSC register
  • Which conditions of control are met
  • The level of their shares and voting rights – that is, whether it’s 25% to 50%, 50% to 75%, or more than 75% of rights

Step Three: Keep the Register Up to Date

This is not a “do once and forget” exercise; the register must be kept up to date. Part of the compliance team’s duties should include contacting the PSC to confirm their details. Note that it could be a criminal offense to refuse to provide PSC information, but local legislation will need to be consulted for confirmation.

Of course, any time any information relating to a PSC changes, the register needs to be updated, too – and if that PSC crosses multiple entities, each register will need to be changed.

What Does the Beneficial Ownership Register Mean for Compliance?

Failure to have a beneficial ownership register or having incorrect or out-of-date information can lead to sanctions and fines in most jurisdictions with a register requirement. Again, each jurisdiction will have varying levels of sanctions, but this is an additional compliance burden for European companies.

The beneficial ownership register should be owned by the compliance team, and regular dates to confirm and update information should be included in any compliance timeline or list of milestones. There are filing requirements here, too, so legal operations professionals or compliance team members need to own the process and understand the responsibilities.

How Can Entity Management Software Help Manage the Beneficial Ownership Register?

Needless to say, and especially if your compliance team is dealing with hundreds of entities across Europe, maintaining the beneficial ownership register can be time-consuming and burdensome. Automating as much of the process as possible and being able to easily visualize the corporate structure can help to ease that burden.

Entity management software becomes essential, as it can help to highlight compliance risks and show director and ownership details at a glance. By hosting this essential corporate information in a secure cloud portal, compliance and legal operations professionals can zoom in on aspects such as voting rights and shareholdings through entity diagramming. Perhaps even more importantly, director details can be kept up to date in a central repository, meaning that there is no duplication of details for those ultimate beneficial owners who run across multiple companies or entities – if a detail changes, the compliance team changes it in one place, not having to remember all the different registers on which that director is listed.

It’s in this world of increasingly complex regulation requirements and responsibilities that entity management software becomes essential to legal and compliance operations. Diligent’s entity management software can help to ease the compliance burden; get in touch and schedule a demo to see how our software can help you move away from managing the day-to-day details and allow a more strategic approach to governance and compliance.