Since 6 April 2016, charities and community interest companies incorporated under the Companies Act 2006 have had to create and maintain in their statutory books a register of people with significant control, otherwise known as a PSC register. The point of the legislation introducing the requirements was to improve transparency of beneficial ownership of corporate structures, and the requirements are backed up with criminal sanctions for non-compliance.
A consultation issued by the Treasury on the transposition of the EU Fourth Money Laundering Directive into UK law from June 2017 previously suggested the PSC register may well become a concern for many more charitable organisations.
The Government must identify the legal entities to which the new legislation should apply, and the Treasury consultation document listed, amongst others:
- Royal Charter bodies
- Charitable Incorporated Organisations and
- Community Benefit Societies
as potentially falling within the scope of the Directive in respect of transparency of beneficial ownership, meaning that the PSC register requirements would likely be extended to apply to such organisations. If this were to happen, it would also impact the PSC registers of the trading subsidiaries of any such organisations, which would need to be reviewed and updated.
However, last month’s consultation document issued by the Department for Business, Energy & Industrial Strategy (BEIS) suggests this may not be the case. It proposes that in order to fall within the scope of the Directive, an entity must:
- be incorporated
- be incorporated in the UK and not have legally transferred its seat or incorporation to another jurisdiction and
- be constitutionally capable of legitimately having a beneficial owner.
Applying this rationale, BEIS believes that CIOs, Scottish and Northern Irish CIOs, and community benefit societies should only be subject to the obligations of the Directive where they actually have a beneficial owner. For the vast majority of charities formed as CIOs or community benefit societies, this would mean no requirement to create and maintain a PSC register.
The situation for Royal Charter bodies is less straightforward. BEIS suggests that unregistered companies subject to the Unregistered Companies Regulations 2009 (the “2009 Regulations”) do fall within the scope of the Directive. Whether or not a Royal Charter body is subject to the 2009 Regulations, and so within the scope of the Directive according to BEIS, will depend on the terms of its constitution.
Broadly speaking, if the approach of BEIS is applied, some Royal Charter Bodies may well fall into the scope of the Directive, but not universities. BEIS also confirms that it does not think FE corporations will come within the scope of the Directive.
Will Brexit affect the implementation of the Directive? No, because the UK remains part of the EU, and until all exit negotiations are concluded the Government will continue to implement and apply EU legislation. The legislation relating to the Directive must be implemented before Brexit exit negotiations are concluded.
In the meantime, although the Treasury consultation closed on 10 November, there is still time to respond to the BEIS consultation, and comment on its proposals. The consultation closes on 16 December 2016.