Person of Significant Control

To align with AMLD 4 rules for reporting beneficial ownership, the UK has developed Person of Significant Control (PSC) requirements for companies, limited liability partnerships and eligible Scottish partnerships. They must report the PSC to Companies House, the UK register, within 14 days of any change. Note, the 14-day requirement became effective June 26, 2017.

Still with us? Either you’re involved with a UK company that has to comply, or perhaps you’re interested in compliance and know that similar requirements are coming your way. In any case, let’s examine the specific rules, how to comply, and what it means for compliance officers around the world.

Who is a Person of Significant Control?

A PSC is an individual who either:

  • holds more than 25% of shares in the company
  • holds more than 25% of voting rights in the company
  • holds the right to appoint or remove the majority of the board of directors of the company
  • has the right to exercise, or actually exercises, significant influence or control over the company

Also, a trust or firm that satisfies one of the first four conditions if it were an individual is also considered a PSC.

While the first three conditions are binary — they do or they don’t —the phrase significant influence or control requires further definition. There are numerous conditions that might apply, so let’s look at guidance provided by the UK Secretary of State, Right to exercise significant influence or control over a company:

2.6. Where a person has absolute decision rights over decisions related to the running of the business of the company, for example relating to:

(a) Adopting or amending the company’s business plan;

(b) Changing the nature of the company’s business;

(c) Making any additional borrowing from lenders;

(d) Appointment or removal of the CEO;

(e) Establishing or amending any profit-sharing, bonus or other incentive scheme of any nature for directors or employees; or

(f) The grant of options under a share option or other share based incentive scheme.

Also:

3.3. A person would exercise “significant influence or control” if:

(a) They are significantly involved in the management and direction of the company, for example:

A person, who is not a member of the board of directors, but regularly or consistently directs or influences a significant section of the board, or is regularly consulted on board decisions and whose views influence decisions made by the board.

This list is not exhaustive, but rather to give you an idea of some of the individuals that need PSC consideration.

What Information is Required from a PSC?

PSC’s must report identifying information to the company. They can volunteer the information as soon as they know they are a PSC or notice an error in the PSC register. Or, if they get a notice from the company requesting the information, they must respond. If you don’t —and don’t have a good reason for non-response — it could be a criminal offense.

While companies must take reasonable steps to contact the PSC, the onus is on the PSC, especially in cases where there is direct and indirect ownership; the PSC knows how much they own and they can hide their true ownership level from the company.

The information must also be confirmed before entering it into the register. If the information comes from the PSC, that is confirmation enough. Or, if it comes from someone the PSC knows, or is in the original filing, that also counts as confirmation.

The following information is required:

  • Name
  • Date of birth
  • Nationality
  • Service address
  • Usual residential address (not disclosed)
  • Date they became a PSC
  • Type of PSC conditions
  • If there’s an application for public disclosure protection

Note, these laws apply to UK registered companies; “Overseas entities operating in the UK might be subject to requirements in their home country but are not subject to the requirements of Part 21A to hold a register.”

Only including UK companies points to the difficulty of tracking down complex cross-border ownership structures. As a Dun & Bradstreet report, The Intricacies of Ownership and Control: Understanding Beneficial Ownership Structures states:

However, most of these sources have limited or no access to offshore entities or contain unreliable, incomplete data. According to the World Bank, even when public registries do exist, such as the UK’s “Persons of Significant Control” (PSC) register, detailed information on Ultimate Beneficial Owners (UBO) is very rarely included because it is not mandatory. Despite the efforts by governments and regulators to increase transparency and disclosure, information on the UBO of offshore corporate vehicles will not be included in Anti-Money Laundering / Counter-Terrorism Funding central registries.

PSC reporting requirements and the Companies House register are a step forward for transparency. However, there is still considerable work to close loopholes and extend reporting requirements to off-shore entities.

Meanwhile, for UK companies, there’s the practical aspect of compliance. While the original requirements have been in place for over a year, the 14-day reporting rules are new and require compliance now. Do you have processes in place to do deal with new PSC rules?

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