Register of Overseas Entities (Protection and Trusts) (Amendment) Regulations 2025

Baroness Gustafsson Excerpts

Monday 3rd February 2025 Grand Committee

Moved by

[Baroness Gustafsson]

That the Grand Committee do consider the Register of Overseas Entities (Protection and Trusts) (Amendment) Regulations 2025.

Relevant document: 12th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)]

My Lords, noble Lords will be aware that, since 2022, the UK has kept a beneficial ownership register of overseas entities owning property in the UK, which I will refer to as the ROE. The regulations that we are debating today will strengthen the transparency of trust information on the ROE, improving transparency around the control and ownership of land.

The Economic Crime (Transparency and Enforcement) Act 2022, which I will refer to as the 2022 Act, created the legislative basis for the ROE. The ROE requires overseas entities owning or buying property in the UK to give information about their beneficial owners and/or managing directors to Companies House. Currently, there is no public access to information on trusts related to overseas entities on the ROE, other than the name of the trustee. This approach protects the right to privacy for those who operate trust structures for a variety of legitimate reasons. However, the Government understand the concerns around the use of trusts to facilitate economic crime, partly because their anonymity makes assets easier to hide; that is why we have brought these measures forward for your Lordships’ consideration.

I will now set out the two measures contained in the regulations. First, they will enable anyone to apply to access trust information held on the ROE, through applications to Companies House. This marks a significant step forward in transparency, empowering the public and civil society to scrutinise trust beneficiaries on the ROE. Applicants must provide their personal information; the name of the trust related to the relevant protected trust; and the overseas entity’s name and ID.

Applicants seeking trust information related to minors or more than one overseas entity in a single application, also known as bulk access, must show a legitimate interest in the requested information. This safeguard protects personal information while providing that critical information is available to those with a valid need, such as investigative journalists. For an applicant to demonstrate that they have a legitimate interest, they must: show that they are investigating money laundering, tax evasion, terrorist financing or the breaching of sanctions; provide a statement that they are requesting the disclosure to further that investigation; and provide a statement of how they are planning to use the information disclosed to them. If no such interest can be demonstrated, the registrar of Companies House may withhold some or all information. The registrar will notify the applicant of the decision with reasons. If a legitimate interest can be demonstrated, the registrar will release any unprotected information.

As an additional safeguard, the registrar will have the discretion to impose conditions under which the trust information is disclosed, such as restricting its use or further disclosure. Failure to comply with these conditions will be a criminal offence. The registrar may also refuse an application where that disclosure may prejudice an ongoing criminal investigation or adversely affect national security, or where the trust is a pension scheme.

I turn to the second measure. This involves provisions for the protection of sensitive information, which will come into force before the disclosure provisions go live. We are expanding the category of individuals who can apply to Companies House to have their information protected. This ensures that those connected to a trust—settlors, trustees and beneficiaries—who are at risk of violence or harm can have their information protected. Those who are aged under 18 or lack capacity can also apply to have their information protected.

The protection measures will come into force on 28 February this year, while the disclosure provisions will come into force on 31 August. This will allow time for those who are eligible to apply to Companies House for protection. An application for protection does not exempt an overseas entity from full compliance with the requirements of the ROE in general, such as the update duty and filing with Companies House. The registrar will still be able to use their general information-sharing power to share protected information with law enforcement agencies and public authorities for purposes connected to the exercise of their functions.

These regulations further the Government’s mission to improve the transparency around beneficial ownership, driving confidence for investment in the UK and exposing bad actors who seek to take advantage of our open economy. I urge noble Lords to support these regulations and beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I welcome the noble Baroness to her post, as it is the first time I have been across the table from her. She was not here when we were debating the two economic crime Bills, but I am sure she is aware that the subject of the use of trusts to obscure the beneficial ownership of UK property on the ROE and obscure ownership of UK companies, which this instrument does not cover, was one of the major areas of our debates at the time.

These regulations are a small step to improve transparency around the use of trusts to own UK property. I understand the balance around the protection of minors and others at risk, so I welcome the regulations, but slightly question how much difference they will make in practice. At least the progress is in the right direction.

I will ask a couple of questions about some general, related areas, if I may. I could not resist this opportunity. First, the latest information that I could find indicates that the true identity of the beneficial owner of UK properties owned by overseas entities—there are 152,000-odd—is not published in about 70% of cases, at the moment. For about 35% of cases, the true beneficial ownership is not known even to law enforcement agencies. There may be a number of reasons for that, including simple non-compliance, which accounts for about 10% in the last numbers I saw; the use of opaque corporate structures, which claim no beneficial ownership, or the use of nominees; and the use of trusts, which is the biggest one, particularly in our overseas territories. Transparency International’s latest numbers identify about £6 billion worth of suspicious transactions in UK property coming through our overseas territories, using trusts.

Could the noble Baroness provide up-to-date statistics on both level of compliance with the rules and the number of properties where the ultimate beneficial ownership remains unknown, for whatever reason? I am happy for her to write, if necessary, if she does not have the numbers to hand. Is she happy with the level of identification of beneficial ownership as it stands? What impact does she think these regulations will have on that? What further steps are planned to make sure that we know who beneficially owns the properties? In particular, what plans does she have to make the information from our overseas territories more transparent? The British Virgin Islands, in particular, appear to be the jurisdiction of choice for obscuring beneficial ownership, at the moment.

Of those entities that have not complied—10% was the number that I saw, which is about 15,000 entities—how many have been fined? Of those, how many have paid those fines and gone on to comply subsequent to payment? How many charges have been taken against the properties in relation to non-payment of the fines? In other words, does Companies House have sufficient powers to deal with non-compliance, and is it using those powers effectively?

Secondly—and I hope that the noble Baroness will forgive me for going slightly off-piste—another way to hide beneficial ownership is through the use of nominee shareholders. I notice the noble Lord, Lord Fox, smiling; I hate to be predictable, but there we go. This is particularly true for UK companies, where the persons with significant control or PSC rules can be sidestepped by the use of nominees. An entire industry has built up around that. The previous Government accepted that there was an issue around the use of nominees for this purpose and agreed to include a power in the Economic Crime and Corporate Transparency Act 2023 to take further action against the use of nominee shareholders and the industry that supports them, if they felt it was necessary. This is now Section 790IA of the Companies Act 2006. I want to take this opportunity to ask what assessment this Government have made of the use of nominees in that respect and whether they intend to make use of the powers they have under the Companies Act to address it.

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[Baroness Gustafsson (Lab)]

First, I thank noble Lords. It is a pleasure to hear from what was clearly the dream team, back when this was established, of the noble Lords, Lord Sharpe, Lord Vaux and Lord Fox. I am privileged to be in a Room where we all agree on the importance of balancing the transparency around and the privacy of the information being provided.

The noble Lord, Lord Fox, asked whether I saw myself, when I joined the House of Lords, standing here in front of noble Lords delivering a statutory instrument. I could not possibly have begun to comprehend what it involved, but I will now do my best to answer as many of noble Lords’ questions as I possibly can. I promise to follow up in writing for any that I miss.

The noble Lord, Lord Vaux, asked whether we have an update on some of the metrics. Since the register was launched, we have 31,827 entities as of 24 January 2025, which reflects a very good rate of compliance. Notably, non-compliant overseas entities can no longer easily sell, lease or raise finance over their land until they comply. Furthermore, with regard to those that are non-compliant and the extent to which we are following up by issuing fines, we have issued 4,800 penalty warnings since 26 June 2023, along with 440 penalty notices, worth £20 million, of which 70 have been redacted. I hope that this demonstrates that, although it is imperfect, we are making progress on establishing more transparency in the register and enforcing that transparency wherever we are available and able to do so.

On the question of whether further steps are necessary, particularly regarding the British Virgin Islands, this is a constantly evolving and moving landscape. I regret that, whatever structure is put in place, a lot of people with a lot of brain power will be there trying to find a way around it and get through the process. This measure will, therefore, be under constant review and constantly evolving. We will conduct a post-implementation review at a later stage to evaluate the overall impact of the register of overseas entities, including the specific effects of the regulations on trust transparency. We will also conduct ongoing engagement with stakeholders, whether it is lawyers and accountants, the registrars themselves or civil society who require this information. This will be an ongoing dialogue as we constantly battle out the balance between privacy and transparency.

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[Lord Fox (LD)]

I asked whether judicial review is applicable. If the Minister is able to write to me on that, that would be helpful.

[Baroness Gustafsson (Lab)]

I absolutely will write to the noble Lord to follow up on that.

I was asked whether Companies House is equipped to deal with this volume of applications and what the administrative burden will be of undertaking a lot of these reviews. It is important to note that most applications for disclosure are going to be fairly straightforward and will not require the demonstration of legitimate interest. This requirement is required only for specific types of requests, such as those involving minors or bulk data, which we talked about. In those cases, applicants must provide evidence that they are investigating money laundering, tax evasion, terrorist financing or sanctions, and must explain the intended use of the information.

Companies House will draw on mechanisms similar to those used by HMRC, where applicants demonstrate a legitimate interest in disclosures from HMRC’s trust registration service. The registrar may request additional information or evidence to determine an application or refer a question to another party who they consider may be able to assist in determining the application. With extensive experience in handling sensitive requests, Companies House is well prepared; it has contingency plans to manage any surge in applications promptly and efficiently. I note that a nominal fee will be required of applicants to make sure that this is cost-neutral with regard to the Government. I think that covers most of those questions, but do correct me if I am wrong.

I shall now move on to the questions asked by the noble Lord, Lord Sharpe, about what legitimate interest is, how it is pursued and followed up, and what the application process is. To apply for access to information about a specific trust, applicants must provide their personal information, the name of the trust related to the relevant protected trust information, and the overseas entity’s name and ID. Applicants seeking trust information related to minors or bulk access—that is, applying for information on more than one trust in a single attempt —must demonstrate a legitimate interest, such as investigating money laundering, tax evasion, terrorist financing or a breach of sanctions imposed by regulations under the Sanctions and Anti-Money Laundering Act 2018. They must provide a statement to Companies House that they are requesting the relevant protected trusts’ information to further their investigation and a statement of how they plan to use the information. Companies House is not obliged to disclose the information if it could prejudice an ongoing criminal investigation or adversely affect national security; if it involves a pension scheme; and where the individual has applied for protection.

With regard to how someone will show that they are investigating money laundering et cetera for the legitimate interest test, applicants are expected to provide comprehensive details of the investigation that they are undertaking, supported by evidence to demonstrate the legitimacy and seriousness of their request. This will help ensure that applications are valid and that the process is not misused.

[Lord Vaux of Harrowden (CB)]

Can I just follow up on that? It occurs to me that there is a potential issue here. What it does not say is who—so you do not have to be a journalist; you could be anyone looking at money laundering. For example, you could be a Russian person with a vendetta against another Russian person who owns a property, and you could simply say that you were looking at the money-laundering aspects of that. The noble Lord, Lord Sharpe, asked whether it had to be the Times of London or whether it could be some dodgy website—but it could go further than that. It could be another competing Russian oligarch, or something of that nature.

[Baroness Gustafsson (Lab)]

I think that you talk to the problem at hand, which is how you balance off disclosure from harm. There will often be legitimate reasons for wanting to access this information, but there are also legitimate reasons why you would not want someone to have that information. I do not think that this is a policy where you can describe a single selection, or parameters, that will defend both sides, which is the exact reason for this process, I believe.

The applicant who requires the information has to give full and detailed information as to their identity and why they would need the information, and the individual whose details are being disclosed has the opportunity to write and say that this is information that could cause them harm were it to be disclosed—and proactively make that statement, so that the registrar has the ability to protect those interests. Then it is the registrar’s role to take that information and ensure that they are getting that balance right. They have the information about the applicant, and they can make that judgment based on whether something is a legitimate interest and this is not a bulk access—someone trying to get the full list of all the trustees so that they can sell their local accountancy advice, or whatever that motivation is. On the other hand, they also have the register for people who believe that interest would be detrimental to their personal ability. Their role is to balance the two, providing that transparency but also protecting them from harm.

[Lord Fox (LD)]

I am sorry to labour the point, but the way in which it is being depicted is as if people will accept the registrar’s ruling and say, “Oh, yeah, right, I understand why you’re not letting me do this”, or, “I understand why you’re letting this person look at my identity”. It seems to me that human nature will operate in exactly the opposite direction and that there will quickly be a huge backlog of people who do not agree with the registrar’s decision, one way or the other. There does not seem to be a defined appeal process. If it is all getting lumped into judicial review, we all know how long that takes and what it leads to—and if there is no system and it all ends at the registrar, there is huge pressure on the registrar to be right every time, which will be extraordinarily difficult. While I can understand how it is being described, my sense is that it will be a lot messier than that.

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[Baroness Gustafsson (Lab)]

To take the second question first, that is correct. The beneficial owner will not automatically receive notice that they have had this request around their information, or that their information has been disclosed, although that information would be available through a freedom of information request. The information is there, but there is no automatic process whereby they would be informed were someone to make that request. I understand why that would be the case, and that it would be something subject to an ongoing review—but, ultimately, I understand why that decision has been taken here.

With regard to the process, there is a judicial review in place for an appeals process. It is something that is going to have to be under this ongoing review about the volumes that are required and whether we are creating a backlog of requests that ultimately end up in that appeals process, which could be indicative that this is not a pragmatic balance that is sat in the middle between transparency and privacy. I still believe that this is a really strong step forward in providing the much-needed greater transparency that all noble Lords in this Room have been important and paramount in creating in the first place. We are just taking the next step in providing that transparency.

Motion agreed.