10 frequently-asked-questions about the Economic Crime (Transparency and Enforcement) Act 2022 and the Register of Overseas Entities

The Government has released 3 new statutory instruments:

• The Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 (SI 2022/725);
• The Land Registration (Amendment) Rules 2022; and
• The draft Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022.

The briefing we wrote in March sets out the basic details of the new regime, and the new regulations flesh out some of the details of how the Act will work in practice.

The Act provides for the establishment of the Register at Companies House, which will come into force on 1 August 2022. The Register will include information about the overseas entity and its registrable beneficial owners and, if none of the owners meet the criteria to be deemed "registrable beneficial owner" or if some of them are unknown, the overseas entity's managing officers. It obliges overseas entities to register if they own freehold land, or leases granted for 7 years or more, in the UK. Overseas entities which are proprietors of registered charges do not fall within the regime.

A beneficial owner generally only needs to be registered if they hold more than 25% of the shares or voting rights in an entity; can appoint a majority of its directors; or have some other significant influence or control over it (including through a trust or partnership structure). This mirrors the threshold for becoming a registrable beneficial owner under the existing People with Significant Control ("PSC") regime for UK companies.

The new rules will affect overseas entities that:

• apply for registration of qualifying land at HM Land Registry after 5 September 2022, whether this is voluntary first registration or as a result of the acquisition of new qualifying land since 31 December 1998;
• are already registered proprietors of qualifying land on 1 August 2022, where the land was acquired after 31 December 1998; and
• disposed of qualifying land since 28 February 2022. These entities will not need to register if they do not hold any other qualifying land, but must submit details of this disposal to the Register, together with their registrable beneficial ownership as it was immediately prior to the disposition, as if the Act were in force at that date.

Overseas individuals who own land in the UK in their own names do not have to register, but their details will need to be submitted to the Register if they meet the threshold for control or ownership of an overseas corporate entity and therefore meet the criteria for being a 'registrable beneficial owner' of the overseas entity.

Broadly, an overseas entity can only apply to Companies House for registration, to update its information, to apply for removal from the Register, to resolve inconsistencies in its data or to rectify the Register, or to provide data about pre-commencement sales of land if, within the previous 3 months, the information it proposes to submit has been verified by someone who falls within the category of persons set out in regulation 8 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

This includes the following bodies acting in the course of business carried on by them in the UK:

• credit institutions;
• financial institutions;
• auditors, insolvency practitioners, external accountants and tax advisers;
• independent legal professionals;
• trust or company service providers;
• estate agents; and
• auction platforms.

There are various situations in which such entities are excluded from the list, such as if their financial activities are deemed to be occasional or very limited or if they have been convicted of an offence under the Act or under the Money Laundering Regulations.  If the entity whose information is being verified is an individual, then the verifier cannot be a friend, associate or relative.

The verifier will need to confirm to the Registrar that they have undertaken the verification of the relevant information in accordance with the Act, the date on which this process was undertaken, their professional address and email address, their supervisory authority, registration number and any line manager within their entity.

Only individuals can apply to the Registrar to have their protected data kept from public inspection.  This can be done by the individual themselves, or by the overseas entity on their behalf if it has their consent to do so.

Protected information means the person's name and/or any former name, their date of birth, nationality, addresses, e-mail address and the fact that they are (or were) a relevant individual in relation to an overseas entity for the purposes of the Act.

The application must establish that the individual reasonably believes that if the protected information is made available for public inspection or is revealed by the Registrar then the activities of the overseas entity, or one or more aspects of the person when associated with that overseas entity, will put them or someone living with them at serious risk of violence or intimidation.  The exact contents of the application are set out in regulation 7(4) of The Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022.

The Registrar must notify the applicant of its decision as to whether or not the application has been successful within 7 days, and that there is a right of appeal for unsuccessful applications.

The Registrar can disclose protected information in order to communicate with the relevant individual or the relevant overseas entity, or to any of the public authorities set out in schedule 1 to the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 where the authority has notified the Registrar that it will use the data only for its public function.  The list contains 54 authorities including the Bank of England, the Charity Commission, the Competition and Markets Authority, the National Crime Agency and the Health and Safety Executive.

If the data is required by the National Crime Agency, Secret Intelligence Service, Security Service or Government Communications Headquarters then they do not have to confirm to the Registrar how it will use the data.

Information regarding new applications to the Register, updates to the Register, applications for removal of an entity from the Register and applications to correct data in the Register must all be submitted to Companies House by electronic means and must be in English.

However, data need not be submitted electronically when the application relates to an application to protect information relating to an individual who is or used to be a registerable beneficial owner or a managing officer of an overseas entity, and the application meets the criteria set out in the previous paragraph.

HM Land Registry will add the Overseas Entity ID ("OE ID") issued by Companies House, along with a restriction, to the registered title of all overseas entity proprietors of freeholds and leases granted for more than 7 years.  The restrictions are expected to be added automatically to all registered titles held by overseas entities on 5 September 2022, although may be added at a later date if there are current applications for registration pending against a relevant title number. 

There will be two forms of restriction. Both will state that no dealings by the proprietor will be completed by registration unless one of a list of specified exceptions apply to the transaction (see box below).

The first form of restriction will be expressed to take effect six months following commencement (i.e. from 31 January 2023).  If there are current applications in progress, then the restriction will be added when the existing applications have been dealt with and may not be added to the register at all if the property has been sold to a UK entity.

A second form of restriction will take effect immediately and will be entered against any title that is registered by an overseas entity after 5 September 2022.

Once the relevant restrictions are entered on title and effective, anyone buying, granting a charge over a property, or taking a lease of it for a term of 7 years or more, will have to either supply the proprietor's OE ID or alternatively provide a conveyancer's certificate to the effect that the transactions falls within categories b) to f) in the box above. Note that if the buyer or lessee is also an overseas entity, they will also need to provide their own OE ID. Note that charges in favour of overseas lenders will not require an overseas lender to register and provide an OE ID. An entity entering into contractual arrangements with an overseas entity will be able to check at Companies House that the OE ID that it has been given by the overseas entity is correct and that the overseas entity has complied with its updating duties.

Note that if a UK-based owner enters into a sale contract to sell affected land to an overseas entity which then sub-sells to a UK buyer in such a way that the proprietor transfers the property direct to the sub-buyer, then it will not matter whether or not the intermediate overseas entity has complied with the new regime.

HM Land Registry will issue new forms for land registry applications, which will contain an additional section requiring overseas entities to set out their OE ID.  This will apply to first registrations as well as to land that is already registered, but not for charges granted in favour of overseas lenders which, as mentioned above, do not require the overseas lenders to obtain an OE ID.  The prescribed clauses for leases will also be updated to ask for this information to be included, or for a statement that it is not required.  There will be a transition period of 15 months in which the current land registry forms can continue to be used, so long as the OE ID is provided separately. 

Contracts for the following types of transactions, where either party is an overseas entity, will need to contain contractual provisions obliging any party which is an overseas entity to apply to the Registrar in order to become a registered overseas entity, supply its OE ID to the other parties before completion (if the Register is open to applications at that point) and maintain its registration at least until all connected registrations at HM Land Registry have been completed:

• The sale of freehold land in the UK;
• the grant of a lease for 7 years or more over land in the UK;
• the assignment of leases that were granted for 7 years or more in the UK; or
• the grant of a charge over freehold land or leases granted for 7 years or more over land in the UK, where the chargor is an overseas entity (but not in respect of the overseas chargee).

Overseas entities that own freehold land or leases for a term of more than 7 years in the UK, or that have disposed of these interests since 28 February 2022, should start now to assemble the information that they will need to submit to Companies House.  The table below sets out what information will need to be provided.  Overseas entities will need to obtain an OE ID before they can make an application to HM Land Registry, and it is unclear how long it will take Companies House to process applications.

In addition to the above, if any registrable beneficial owner is a trustee, the overseas entity must disclose the name or description of the trust (if it does not have a name), together with the date on which the trust was created.  The overseas entity will also need to disclose details about all trustees at any time (even if they have since ceased to be trustees) including their names and dates during which they were trustees.  Trust beneficiaries also need to be disclosed, together with their names, dates of birth, nationality, residential address and service address (if a legal entity other than an individual).  None of this information is ordinarily available for public inspection, although can be disclosed by the Registrar to certain public authorities, as outlined in paragraph 6 above.

The register of overseas entities will come into force on 1 August 2022, and overseas entities will be able to apply to register and obtain an Overseas Entity ID from that date. The Land Registration provisions of the Act will only take effect from 5 September 2022, and so entities acquiring land from overseas entities prior to that date should benefit from the delay in restrictions being put on title. For overseas entities acquiring, charging or taking leases of more than 7 years from 1 August, they should expect a restriction to be put on their title, which will be immediately effective.

There are still some areas of uncertainty as to how this regime will work in practice, but any overseas entity wishing to acquire or lease land in the UK will need to have registered prior to completion. Any overseas entities who currently own UK land should start to prepare for an application to the Register either prior to any disposition or the end of the transitional period on 31 January 2023, and anyone entering into land transactions with them should ensure that their contracts oblige that entity to comply with the new regime.