The new Significant Controllers Register – revealing beneficial ownership of companies

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Introduction

Following the Financial Services and the Treasury Bureau’s (“FSTB”) consultation conclusion published in April 2017 regarding the enhancement of anti-money laundering and counter-terrorist financing regulation in Hong Kong, the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) is amended with effect from 1 March 2018 (the “New Requirements”), which requires companies incorporated in Hong Kong to obtain and maintain updated beneficial ownership information by way of keeping a significant controllers register (“SCR”).

The New Requirements apply only to companies incorporated and registered in Hong Kong, and listed companies are expressly exempted as they are already subject to more stringent disclosure requirements under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).

The New Requirements purport to enhance transparency of company ownership and ultimately to introduce an effective mechanism for identifying and dealing with the misuse of legal persons for concealing money laundering and terrorist financing.

Who is a “significant controller”?

A significant controller of a company includes a registrable legal entity and a registrable person, which respectively means a legal entity that is a member of the company, or a person or a specified entity (such as a government of a territory), having significant control over a company.

A person will be considered as having “significant control” in a company if he fulfils any one or more of the following:

  • directly or indirectly holds (a) more than 25% of the issued shares in the company (where the company has a share capital); or (b) a right to share in more than 25% of the capital or profits of the company (where the company does not have a share capital);
  • directly or indirectly holds more than 25% of the voting rights in the company;
  • directly or indirectly holds the right to appoint or remove a majority of board of directors of the company;
  • has the right to exercise, or actually exercises, significant influence or control over the company; or
  • has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person under the law governing the trust or firm, and whose trustees or members satisfy any one or more of the first four conditions above (in their capacity as such).

Company’s duties under the amended Companies Ordinance

Keeping a SCR at a prescribed location

Under the New Requirements, the SCR shall be kept at a company’s registered office or at a prescribed place in Hong Kong. Unless the SCR is kept at the registered office, or at the place where a company’s register of members is kept, the company is required to notify the Registrar of Companies of the place where the SCR is kept and any change in the place at which the SCR is kept by filing the new Form NR2 (Notice of Location of Registers and Company Records) within 15 days after the SCR is first kept at that place/the change in place at which the SCR is kept

Taking reasonable steps to identify the company’s significant controllers

The New Requirements impose positive obligations on the companies to take reasonable steps to identify its significant controllers. If the company knows or has reasonable cause to believe that a person is a significant controller, or a person knows the identity of another person who is a significant controller, it must give notice to such person within 7 days of the knowledge or belief so as to obtain the required particulars from such person.

Entering the required particulars into the SCR

The SCR must be kept in English or Chinese and must contain the following particulars of each significant controller:

Registrable person Registrable legal entity
Name Name
N/A Legal form of the entity and governing law
Correspondence address Address of the registered office / principal office
Number of identity card /

(If no identity card) number and issuing country of passport

Registered number or the equivalent in the entity’s place of incorporation / formation
Date on which the person became a registrable person Date on which the legal entity became a registrable legal entity
Nature of control over the company Nature of control over the company

 

Apart from the abovementioned particulars of the significant controllers, the SCR shall also contain the prescribed particulars (i.e. name and contact details) of a “designated representative” of the company. Such person must be either (i) a member, director or an employee of the company (who must be a natural person resident in Hong Kong); or (ii) an accounting professional, legal professional or a TCSP licensee (a person licensed under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance to carry on trust or company service business in Hong Kong). A designed representative plays the role of providing assistance to law enforcement officers in relation to the SCR.

Keeping the required particulars in the SCR up-to-date

Cessation of a person to be a significant controller or any change that results in the required particulars entered into the SCR being incorrect or incomplete constitutes a “registrable change”. If the company knows or has reasonable cause to believe that there is a registrable change with respect to a significant controller, the company must give notice to the significant controller within 7 days after such knowledge or belief. After the company has obtained the updated particulars, it must enter into the SCR the registrable changes within 7 days.

Making the SCR available for inspection and taking of copies

The company has a duty to (i) make its SCR available for inspection by a law enforcement officer at the place the SCR is kept; and (ii) permit such officer to make copies of the SCR, when demanded by a law enforcement officer to perform his function in relation to the prevention, detection or investigation of money laundering or terrorist financing. Law enforcement officers who have the right to inspect and take copies of the SCR include the Companies Registry, the Securities and Futures Commission, the Hong Kong Money Authority and the Independent Commission Against Corruption.

Other than law enforcement officers, significant controllers with their names being entered into the SCR may also, orally or in writing, request for inspection and copies of that SCR.

Consequences of non-compliance

Pursuant to the amended Companies Ordinance, failure to comply with the New Requirements may give rise to criminal liability leading to fine at level 4 (currently at HKD25,000).

In addition, if the addressee of the notices given by the company in relation to its duty to obtain required particulars of a significant controller does not respond to such notice within 1 month from the date of the notice, he may be criminally liable, unless he can validly establish that the requirements in the notice are frivolous or vexatious.

Further, a person commits a criminal offence if he, knowingly or recklessly, makes a statement or provides any information that is misleading, false or deceptive in a material particular in the SCR or in the reply to the notice issued by the company.

Conclusion

Before the introduction of the SCR, Hong Kong companies are required to disclose information in relation to the legal owners of their shares, by maintaining a register of members. The New Requirements require companies to further reveal their beneficial ownership, to further enhance transparency in relation to “ownership” of companies.

The SCR is indeed not a new idea in the international market. Similar systems have already been implemented in various jurisdictions, including the United Kingdom, Singapore, the Cayman Islands, the British Virgin Islands and Bermuda. The New Requirements are important for ensuring that Hong Kong remains to be an open, trusted and competitive place for carrying on business.

 

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
Published by ONC Lawyers © 2018