Transparency versus privacy: where will we end up on beneficial ownership registers?
The trend towards transparency
In recent years, we have seen a general drive towards greater transparency, with the Fourth EU Money Laundering Directive (4MLD) introducing a requirement for EU Member States to establish central registers containing details of the beneficial owners and controllers of all legal entities established within their jurisdiction.
Originally, 4MLD allowed a member of the general public to access this information only if they could show a “legitimate interest” in the information being sought. However, the Fifth EU Money Laundering Directive (5MLD), passed in January 2020, removed the requirement to show a legitimate interest, thereby allowing the general public to gain access to beneficial ownership information with no need to give a reason.
In the UK, the Government currently maintains three beneficial ownership registers:
- the persons with significant control (PSC) regime, which requires details of persons with significant control over certain legal entities to be recorded at Companies House;
- the Trust Registration Service (TRS), under which trustees of certain kinds of express trusts are obliged to file details, including information on the trust’s beneficial owners, with HMRC; and
- the Register of Overseas Entities (ROE), which requires non-UK entities that own (or which wish to acquire) registered land in the UK to file details of their registrable beneficial owners at Companies House.
There has never been a “legitimate interest” test under the PSC regime and so, unless a successful application has been made to suppress the beneficial ownership information (based on a serious risk of violence or intimidation for the PSC), these details are fully accessible to the public. Information under the ROE is also generally available to the public, although certain information on trusts within an overseas entity’s ownership structure is private and currently can be disclosed only to enforcement authorities and HMRC. As with the PSC regime, it is possible to apply to suppress beneficial ownership information (but only if there is a serious risk of violence or intimidation for the beneficial owner). Public access to information on trusts registered with the TRS is also limited.
A turning of the tide?
On 22 November 2022, the Court of Justice of the European Union (CJEU) held in WM (C-37/20) and Sovim SA (C-601-20) v Luxembourg Business Registrars that the removal of the “legitimate interest” requirement by 5MLD (resulting in the general public having unfettered access to beneficial ownership information) breached certain freedoms under the EU Charter of Fundamental Rights, specifically the right to privacy and the right to protection from processing of personal data. Our separate article considers this decision in detail.
Following the CJEU’s judgment, a number of Member States have restricted access to their beneficial ownership registers, although the approaches taken in implementing the decision have by no means been consistent. However, with the stated aim of making the rules on beneficial ownership “more harmonised and transparent”, the EU Council and European Parliament announced on 18 January 2024 that they had reached a provisional agreement on the Sixth EU Money Laundering Directive, and that this would reinstate a “legitimate interest” test in respect of members of the general public accessing beneficial ownership registers.
The Crown Dependencies (Jersey, Guernsey and the Isle of Man) and British Overseas Territories (which include, for example, Bermuda, the BVI, the Cayman Islands and Gibraltar) have also reacted to the CJEU’s decision. The UK Government had previously extracted commitments from these territories to implement publicly accessible beneficial ownership registers; however, to date, only Gibraltar has complied. On 13 December 2023, the Crown Dependencies published a joint statement, noting that in light of the CJEU’s decision, “the governments of the Crown Dependencies are satisfied that it would not be compatible with the international obligations extended to them…to grant access to their beneficial ownership registers to the general public” and that they intend instead to work towards implementing a legitimate interest test in respect of access to their registers. Many of the British Overseas Territories appear to be adopting the same approach. For example, the BVI Government issued a statement on 8 December 2023, confirming that its approach to beneficial ownership registers must “take into account the ECJ judgement to help minimise the risk of legal challenges on human rights grounds” and that this “necessitates the application of a ‘legitimate interest test’…” On 15 December 2023, the Cayman Islands Government also made a statement, acknowledging and reaffirming its 2019 commitment to the UK to introduce publicly accessible beneficial ownership registers, but also stating that, in light of the CJEU judgment, it is “currently progressing to provide access to those members of the public who meet the 'legitimate interest test' required by that case”.
The UK’s stance
The fallout from the CJEU decision raises questions as to whether the UK will follow the same direction of travel as the EU, Crown Dependencies and British Overseas Territories in giving privacy more weight in respect of public access to beneficial ownership registers.
However, on 30 January 2023, the UK Government updated a policy paper in which it confirmed its view that the PSC regime and the ROE are both compliant with the European Convention on Human Rights in their current forms (which do not incorporate a legitimate interest test in respect of public access).
In respect of moves by the Crown Dependencies and British Overseas Territories to “water down” their commitments regarding beneficial ownership registers, the UK Government appears to be taking a pragmatic approach. Following a House of Commons debate on 7 December 2023 in relation to this matter, the Parliamentary Under Secretary of State at the Foreign, Commonwealth & Development Office issued a statement, suggesting that an “interim step” involving the implementation of “publicly accessible registers of beneficial ownership, with a legitimate interest access filter” by the Crown Dependencies and British Overseas Territories would be acceptable. However, it was noted that the Government expected this interim step “to be a part of the journey towards the implementation of fully publicly accessible registers of beneficial ownership in due course” and that “the UK Government remain committed to publicly accessible registers becoming the global norm”.
The UK Government’s commitment to greater transparency is also evidenced by the recent consultation, published by the Treasury on 27 December 2023, seeking views on proposals to make information on trusts and their beneficial owners, in the context of land ownership, more publicly available. Our separate article considers this consultation in detail.
It seems clear that the UK Government remains committed to continuing its drive for greater transparency. However, the UK’s position means that it risks falling out of step with other jurisdictions. As noted above, the EU’s announcement earlier this month suggests that the “legitimate interest” test will remain in place for EU beneficial ownership registers for the foreseeable future. The Crown Dependencies and British Overseas Territories are clearly keen to adopt the same approach (although it remains to be seen whether pressure from the UK will shift matters in this regard). It should also be noted that, with effect from 1 January 2024, the US Corporate Transparency Act requires “reporting companies” to register their beneficial owners with the US Department of the Treasury's Financial Crimes Enforcement Network; however, this information will not be available to the general public.
The difference in approach between the UK and other jurisdictions risks placing the UK at a competitive disadvantage, and so the UK government will need to consider carefully the balance it wishes to strike between transparency and privacy.
Watch this space for further developments.