On 18 July the government published its detailed response to the pre-legislative scrutiny report issued by the House of Commons and House of Lords Joint Committee on 20 May. It has accepted several of the Committee's recommendations but rejected others, and there are also some to which it has reacted positively but believes need further consideration.
This article highlights some of the key observations in the response.
What did the government reject?
Definition of "legal entity"
The Committee is concerned that the definitions of "overseas entity" and "legal entity" in the current Bill are not clear enough, and suggested in its report that a pre-clearance mechanism be set up to adjudicate on whether legal entities are registrable. The government disagrees, but said it does intend to publish guidance to help parties to understand the requirements.
25% ownership threshold in definition of beneficial ownership
The Committee's view is that the proposed 25% ownership and voting threshold in the definition of beneficial ownership may be too high to capture the true beneficial owners of overseas entities. The government does not agree and maintains that 25% is the right level. It points out that this is in line with global norms, and that the 25% threshold is only one of the conditions for determining whether a person is a beneficial owner. It will, however, keep the threshold under review.
What did it accept?
"Report it Now"
The government approves the Committee's suggestion that the register should include a mechanism similar to the "Report it Now" function which already operates in relation to UK companies. This will ensure users can flag suspicious or potentially incorrect information concerning overseas entities to Companies House.
And what is it considering further?
Requirement to update the register before any land disposition is made
The Committee suggested that, in addition to the proposed annual updating requirement, overseas entities should be required to update the register before any land disposition is made. The government agrees it is important that the register is as accurate as possible at the point when disposition takes place and will consider further how best to achieve this aim.
Enforcement: civil penalties as well as criminal
Although it still views criminal sanctions as the main deterrent, the government will give further consideration to the Committee's suggestion that civil penalties be used in addition to the current proposed criminal penalties, as an alternative means of regulating behaviour.
The final shape of the draft Bill is not yet clear as a number of areas are to be given further consideration. It is also apparent that much of the detail will be set out in secondary legislation rather than the Bill itself. However, the government's aim is still for the register to be operational in 2021.