The move intended to tackle money laundering by foreign criminals through UK real estate by improving transparency.
The Law Society says that ROE applies to an overseas entity that holds the registered ownership of a freehold estate or a lease granted for more than seven years, commencing on or after January 1, 1999. The regime mandates overseas entities wanting to buy, sell, transfer, or lease property in the United Kingdom to apply for registration.
To allow that to happen, verified, beneficial ownership details must be provided by UK based agents and these professionals must ensure they comply with the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
This involves completing not only verification checks but conducting a risk assessment and being able to demonstrate an understanding of the corporate structure of the entity, its business rationale and its commercial viability. While this was already a risk-fraught proposition for those not familiar with the complex requirements, recent amendments have expanded reporting specifications.
According to Jack Carter, an associate at leading law firm Charles Russell Speechlys, updates include recognising nominees holding UK land interests as registrable beneficial owners (RBOs), encompassing all trustees meeting ownership criteria as RBOs, and repealing the exemption for corporate trustee-held interests.
Disclosure requirements expanded
While the ECTEA (previously) focused on the legal owner of land, meaning that for cases involving the holding of land by a nominee, only the beneficial owners of that nominee would need to be registered, according to a UK spokesperson for global law firm K&L Gates.
“There was a lot of criticism that this did not go far enough as it did not capture the beneficial owner of the entity for whom the overseas entity acted as nominee,” he says.
“The Economic Crime and Corporate Transparency Act 2023 (Commencement No.2 and Transitional Provision) Regulations 2024 (the 2024 Regulations) sought to address the gap and brought a number of new provisions affecting the ROE regime into force on 4 March 2024.
“These Regulations, among other things, increased the amount of information which needs to be provided to Companies House and expanded the definition of an RBO (Registrable Beneficial Owners) with the effect of bringing more beneficial owners within the ROE remit.”
Other recent revisions of the Economic Crime and Transparency Act 2023 include mandating reporting beneficiary changes retrospectively, removing the option to provide a registered office instead of a principal office for new registrations and updated statements, requiring a registered email address and disallowing company names that contain computer code.
According to international law firm Dentons, these reforms broaden the objectives and powers of Companies House. While it was previously a mainly passive receiver of information, it is now a more active gatekeeper and scrutiniser of information.
Accountants should be wary of complex corporate structures
Accurate verification by UK agents is paramount as any lapses could lead to severe consequences such as criminal charges, regulatory penalties, and claims for professional negligence. UK agents must verify all client-provided information meticulously, relying on credible, independent sources.
The K&L Gates spokesperson says: “Red flags in addressing compliance would typically relate to suspicious or non-compliant behaviours.” Accountants should be wary of complex corporate structures with unclear ownership or control, and a failure to disclose beneficial owners, and opaque or convoluted organisational charts that obscure true company ownership, they say.
Failure of overseas entities to register can also impede their ability to transact with UK properties, potentially exposing accountants to liability for clients’ financial losses.
Where an overseas entity fails to register or is in breach of other requirements set out in the ECTEA then Companies House can take enforcement action, says the spokesperson.
“Companies House is able to issue civil financial penalties as well as prosecute criminal activity. Some of the criminal offences, among others, include offences of failure to register on ROE when the overseas entity is required to do so, making a prohibited disposition, or failing to comply with the updating duty.
“When an offence is committed, it is deemed to be committed by the overseas entity and every officer of that overseas entity who is in default.”
Another major change is that the definition of a ROE has been amended so that, if an overseas entity fails to respond to a prescribed form of request for information from Companies House, it will not be treated as a registered overseas entity until it has put right the failure, according to the K&L Gates spokesperson.
“Therefore the overseas entity will be unable to acquire a qualifying estate or to make a relevant disposition until the notice has been complied,” he says.
Companies House has published guidance on how it will use its enforcement powers.
To safeguard against these risks, firms are advised to review their professional indemnity insurance to confirm coverage for these specific engagements.
More changes to come
Looking ahead, anticipated reforms may include stricter identity verification requirements for directors and enhanced data suppression rights to protect personal information.
According to Dentons, future changes may also include prohibiting a new director from acting where their appointment hasn’t been notified to Companies House within 14 days of appointment. And changes to annual account filing requirements mostly focused on small companies and micro-entities.
These changes underscore the evolving landscape and the need for accounting firms to be proactive in remaining compliant and effectively mitigate risks.
Notably, company incorporation and registration fees have also increased from May 1, 2024.
