Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016

Lord Stevenson of Balmacara Excerpts

Wednesday 2nd March 2016 Grand Committee

[Lord Stevenson of Balmacara (Lab)]

My Lords, it is a pleasure to hear the bilious rants from the other side, with which we on this side have some sympathy. I liked the point about the number of times one has to scan one’s passport into an email in order to prove some point or other. Whatever happened to identity cards?

However, there are serious points relating to these regulations which I welcome and will support as they go through. I take the point made by the noble Lord, Lord Hodgson, about the weight or pressure being placed on companies in relation to transparency and the money laundering system more generally. However, that is not the only area where this process came from; as the Minister mentioned, it came from the desire of civil society to have a better handle on how some companies are being operated, as well as from those who wish to invest and from other stakeholders. There is a feeling that the Companies Acts cumulatively perhaps have not kept pace with how people regard the operations of the commercial sectors in the country. Obviously now with LLPs as well, which are not strictly commercial in the business sense but still operate commercially, the ability to have scrutiny is being reduced. It is interesting that the extractives directive and other things have been quoted in support of the need to have this transparency. That better contextualises the situation and I was grateful to the Minister for sketching that out.

That having been said, the point was made that at the end of the day, people will have to operate this in a way that will not be destructive to jobs, the creation of new companies, investment and trade, and these things sometimes do not see it right. Certainly when I began going through these Explanatory Memorandums, piles of which still wait to be destroyed, trees having been cut down all over Europe to create them, it seemed a bit otiose to say the least. On the other hand, these are some of the better Explanatory Memorandums I have seen and I congratulate the department on its work. However, this was difficult to get right. The issues here are complicated and are not factual; with these things we often see that a figure is mechanically put in at one end and comes out at the other, while this is judgment all the way through. I read them with interest and recommend them to those who might have an interest in how this process goes through.

The Minister mentioned this but perhaps it was not brought out as much as it could have been. The Government could have taken a position on this, which is articulated in the EMs, that the regulatory process might not achieve the best result. In the past we on this side have often been critical of the sense of a “voluntarism approach” to many of the problems which we perceive in the commercial world. On this occasion the Government have decided to go with a regulatory structure. It has not been an easy decision but I commend them for the rigour with which they have approached it.

Nevertheless—the noble Lord, Lord Hodgson, picked this up—the judgments about what is a significant interest and control in an operation are heavily dependent on interpretations in the fourth and fifth legs of the process. While I listened with interest to what the Minister said about that, I was not entirely convinced that that was picked up either in the documentation we have had or in the wording she used to describe it. I do not think that that is sufficient to hold this back because, as I say, it is a good attempt to try to get it to balance out in a fair way. However, I wondered about the review process because I suspect that this is such a major change in some ways, not in monetary terms and not necessarily in its impact but in the whole way companies relate to the Government and to the wider parts of civil society, that it would be useful to have a pretty firm statement about how this will be seen in practice and whether there will be a formal process. Of course there will be a review, but it would be helpful to have that articulated now. Perhaps the Minister will be able to address that when she comes to respond.

The weakest part of this is the relationship to LLPs. In a sense that sounds very critical but I am not trying to be. LLPs are relatively new in the way we do business and therefore are not perhaps as well exposed as conventional companies. Their instance is largely in the business services and professional area, and it is harder to see quite where the analogues with a board of directors and control for profit is concerned. However, the sense is that the most appropriate way of biting a person with control of an LLP is in the way in which the proceeds of any dissolution would fall, with 25% going to the person deemed to be a person of significant control. That was not perhaps as strong as some of the other measures that apply in the commercial sector, and maybe that could be reflected on before the guidance finally gets published. I suspect that there might be a bit of an issue around that as we go forward, but it would be appropriate for a review provided that it is picked up and it is made clear to people that it will be coming forward.

In summary, I was present during the time the primary legislation went through last year. I was not directly involved in some of the debates around it but I followed them with interest. This is a big change; those who care about some of the actions and activities of companies and have been frustrated in the past because there was a veil behind which it was very difficult to see will feel that this is a step in the right direction. It is not overly bureaucratic but the noble Lord, Lord Hodgson, is right to say, “Hang about—is this really worth all the hassle?”. I personally think that it is, but the questions that need to be asked are: how will you review this, how quickly will that happen and how effective will it be as regards how we might take this forward?

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Stevenson, for his support for these regulations and for his kind words about the Explanatory Memorandum. I will make sure they are passed on to those who worked on it. It always helps to thank people when things are good because that leads to yet further good performance. Let us hope that the regulatory structure works. As the noble Lord said, it is a big change, but this is an important new regime for companies and it is critical that the detailed requirements are correct and fit for purpose. Increased transparency about who owns and controls UK companies is important in maintaining the UK’s higher standards of corporate trust. As we have discussed in relation to many different issues recently, having the sunlight of transparency can be an extremely powerful policy weapon, and we as a Government seek to use it in a number of areas.

We have committed to a review: I think that both sets of regulations require the Government to review the costs to business within five years. I note the points that the noble Lord made, in particular in relation to the LLP regulations, and will make sure that we keep an eye on that. I also repeat the hope that other countries will move ahead as we have done with the PSC, because this only works, as in so many areas, if other countries do this as well.

It was a delight to see my noble friend Lord Hodgson returning to the debate. I am grateful for his cautionary warning about perverse effects, which one could write into many areas of regulatory life. As he says, we need the right balance between transparency and privacy. We focus on risk, and the National Crime Agency is fully on board to be involved in the protection assessment process. As an expert in risk assessment, the NCA is well placed to ensure that assessments are consistently applied and protection applications robustly interrogated.

I share my noble friend’s concerns about the operation of the money laundering directive, which I used to speak about when I was on the Back Benches. I am glad to say that the business department and the Treasury are doing work on its application as part of a deregulation review. I very much welcome the chance to have a discussion with him so that his examples can be fed into that work.