Transparency in control

Companies trading on the London Stock Exchange’s Alternative Investment Market are no longer exempt from publishing details of significant shareholders.

It is widely accepted that London is the money laundering capital of the world, with the property market being the primary avenue for the laundering of £100 billion ($128b USD) of illicit money each year (The Guardian, 2016).

To combat money laundering, tax evasion, terrorism financing, and fraud, both national and international organisations have introduced tougher, more wide-reaching legislation over the last few years.  One such statute came into full effect this week here in the United Kingdom: Directive (EU) 2015/849, or the fourth anti-money laundering directive (“AML4”).

Breaking it down
Complementary to the AML4 legislation is the Persons with Significant Control (PSC) regime. The new law requires all companies – private and public – to keep a recorded register of the persons (including legal entities) who can control or otherwise influence a company. A PSC, popularly referred to as “beneficial owners,” is someone with more than a 25 per cent holding of the shares in a company.

The rationale is that making public this information will prevent fraud and tax evasion through the use of overseas holding structures, which often mask the true ownership of a company or the property it owns.

What this means
From 6 April 2016, most UK companies and all UK LLPs have been required to keep a PSC register. For the last 15 months, companies listed on the Alternative Investment Market (AIM) and the Main Market of the London Stock Exchange, together with ISDX Growth Market companies, have been exempt from the obligations to disclose and maintain a PSC register. This is because their significant shareholder reporting obligations under the Disclosure and Transparency Rules (DTR 5) were considered equivalent to the PSC regime.

However, from Monday 26 June, the now-extended PSC regime captures UK Companies listed on AIM, as well as other prescribed markets.  Accordingly, to meet the beneficial ownership disclosure requirements of AML4, AIM companies will no longer be exempt from obtaining, maintaining, and providing Companies House with the PSC information. The AML4 only expressly exempts companies with shares admitted to trading on a regulated market.

What is a Regulated Market, and how does it differ from a Prescribed Market?  This is a technical legal distinction made by the UK Treasury. The London Stock Exchange’s Main Market is a Regulated Market Somewhat confusingly, while AIM is owned and operated by the London Stock Exchange, it is not a Regulated Market. However, AIM falls within the definition of a Prescribed Market and is therefore subject to the UK market abuse regime.

aml4

The United Kingdom and Denmark have outpaced their EU neighbours in terms of both the creation of their registries and the level of transparency. Both the Danish and UK registries are up and running, publicly accessible, and free. Source: Bureau van Dijk

 

Next Steps
Companies listed on AIM now have 14 days from 26 June to create a PSC register, with a further 14 day period to send the information to Companies House. This requirement stands in addition to the existing disclosure obligations in Rule 17 of the Aim Rules and DTR 5.

The information each company will need to collect from their relevant PSCs is as follows:
• Name;
• Date of birth;
• Nationality;
• Country, or where in the UK the PSC usually lives;
• Service address;
• Usual residential address;
• Date of becoming a PSC (for AIM clients, this date will be 26 June 2017 for current PSCs);
• Which conditions for being a PSC are met (ie shareholdings that are between 25% and 50%, 50% and 74%, or 75% and above); and
• Whether the information provided is to be protected from public disclosure (this will require an additional application)

Failure to provide accurate information on the PSC register is a criminal offence, and may result in a fine and/or a prison sentence of up to two years.

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