Increased Corporate Transparency: what does it mean for pension schemes?

Change is coming to Companies House and the Land Registry: what does it mean for sponsoring employers and trustees of occupational pension schemes?

31 May 2022

The first half of 2022 has seen a clear political focus on increased transparency in corporate governance, doubtless accelerated by global events, and in particular the war in Ukraine. In February 2022, the Corporate Transparency and Register Reform White Paper (the ‘White Paper’) was published, the changes proposed by which are to be introduced in the new Economic Crime and Corporate Transparency Bill (the ‘Bill’) mentioned in the 10 May 2022 Queen’s Speech. This follows on from the Economic Crime (Transparency and Enforcement) Act 2022 (the ‘Act’), which was passed in March 2022 in a hurry – going from introduction to Royal Assent in just 15 days.

A draft of the Bill has yet to be published and, as is usual, no timescale for doing so was given in the Queen’s Speech. However, given current Government focus in this area, we would expect a draft to be published in the coming weeks. The Act is yet to come into force but is expected to do so this summer once the required systems are in place at the Land Registry.

The reforms will have implications for all UK companies, including corporate trustees, professional trustee companies and a pension scheme’s corporate sponsor. We take a look at the proposed changes and how trustees and employers should prepare.

Who should read this update?

The first part of this update is of relevance to all corporate trustees of an occupational pension scheme, whether appointed as the sole corporate trustee or as a corporate director of a corporate trustee. The second part is of relevance to all occupational pension schemes that hold a charge over a UK property owned by a foreign corporate entity.

Background to the reforms

The reforms to be introduced in the Bill are aimed at tackling the abuse of the UK’s corporate registration framework by ‘anonymous or fraudulent shell companies and partnerships’, which the White Paper says are used by criminals to provide a ‘veneer of legitimacy’ and help them to commit a range of crimes. In the context of the war in Ukraine there is a specific reference to the need to prevent ‘dirty money flowing into the Western financial system from former Soviet countries’. The changes already introduced in the Act form part of the Government’s drive to tackle economic crime, and address particular concerns about Russian money-laundering.

So whilst the reforms are intended to remedy a specific ill, every company registered in the UK (including corporate pension trustees) and every foreign company that owns UK real estate will be affected.

Companies House changes

There will be a new statutory role for the Registrar of Companies (and equivalent Registrars for Scotland and for Northern Ireland), described as ‘the most fundamental change to its purpose and role since its creation […] in 1844’. Sitting alongside its existing function of registering company information, will be the new requirement to maintain the integrity of the register of companies and the UK business environment, acting as an ‘active gate-keeper to company creation and custodian of more reliable information on the register’. 

To enable this new function to be fulfilled and deliver the Government’s ambition, the White Paper indicates that there will be a wholesale transformation programme for Companies House, including to the skills, culture and services. There will be new and stronger powers for the Registrar to interrogate the information it is provided with, and to remove it if deemed appropriate.

For corporate trustees of occupational pension schemes, two key changes will be of particular interest:

  • All new and existing company directors, persons with significant control (‘PSCs’), members of LLPs, general partners of limited partnerships and anyone submitting filings on their behalf will be required to verify their identities with Companies House. The primary way for doing this will be for the person undergoing verification to take a photograph of their face and their identity document. The two will then be compared, using likeness matching technology and the photo ID validated ‘in a matter of minutes’. If they submit filings to Companies House, company secretaries will also have to verify their identities; and
  • A company will only be permitted to retain/appoint a corporate director if all of the corporate director’s own directors are natural persons and they have been through the identity verification process. This is being introduced to make anonymous chains of corporate control a thing of the past. Where a professional trustee is appointed as a trustee of a corporate trustee that sits within the sponsoring employer’s group, it is common practice for the professional trustee’s company, not the individual, to be appointed as a director of the corporate trustee, to sit alongside other individual trustee directors. The White Paper confirms that the Government specifically considered the pensions sector when formulating its proposals given the widespread use of the corporate trustee model in that context. It notes that a corporate trustee is no different from any other limited company, and, as such, it will continue to be permissible for professional trustee providers to furnish schemes with professional board members as long as the professional trustee’s board is made up entirely of natural persons and that the corporate director’s company is a UK registered company - overseas corporate directors will not be permitted.

The White Paper states that the Government is not currently minded to extrapolate the same ‘single layer’ restrictions proposed for corporate directors to corporate members of Limited Liability Partnerships (LLPs) or corporate general partners of Limited Partnerships (LPs). The Government will consider whether any further restrictions should be imposed on the use of corporate members of LLPs and corporate general partners of LPs to mitigate the risk of their misuse, but, as things stand, they will only have to provide details of their own directors or a managing officer, whose identity must be verified. Given the use of Scottish LPs in asset backed funding arrangements, trustees who use such funding vehicles should keep an eye on developments and seek advice once the full detail of the Bill is published.

When the Bill is published, it will contain a transitional period for existing companies to comply with the new requirements. However, those that do not comply by the end of that period may face criminal sanctions and be liable for civil penalties.

For more information on the Companies House changes see our blog here Biggest Companies House upgrade for 170 years to help tackle economic crime.

Land Registry changes

The Act created a Register of Overseas Entities which will extend to all overseas companies or entities (not just those linked to Russia or suspected money laundering) which own or become the owner of qualifying real estate located within the UK. The expression ‘qualifying real estate’ means any freehold or registerable lease where the overseas entity’s title was registered on or after 1 January 1999 in England & Wales or after 8 December 2014 in Scotland. The Act only applies to real estate in Northern Ireland acquired by an overseas entity after the Act is implemented. The overseas entity’s beneficial owner will be required to report information and provide various confirmations to the Land Registry, including their name, date of birth and nationality plus residential and service addresses. The registered details will need to be updated annually.

From a trustee’s perspective, the key issue is that if the registration requirements are not complied with, the overseas entity will be prohibited from selling, charging or letting (for more than 7 years in England & Wales, or 21 years in Scotland & Northern Ireland) UK property. Therefore, where trustees hold or are proposing to take security over UK real estate owned by an overseas company, they will need to ensure that the chargor’s beneficial owner has complied with the registration requirements. Failure to comply with the Act attracts criminal penalties of fines (including a daily default rate maximum of £2500 for failure to register or update) and potentially imprisonment for a term of up to 5 years. Moreover, if an overseas entity transfers, lets or charges UK real estate in breach of the restrictions that in itself is a criminal offence. This brings the property which is the subject of such a transaction within the definition of criminal property as defined in the Proceeds of Crime Act 2002, with professional duties for any legal advisers acting on the transaction.

For more information on the new Land Registry reporting requirements, please see our article The Overseas Entities Register for UK Property: how transactions may be impacted.

Takeaways for Trustees and Sponsoring employers

  • If your scheme has a corporate trustee, ensure you keep abreast of the changes being introduced by the Bill and know when your directors, PSCs and company secretary will be required to complete identity verification at Companies House.
  • If you are a professional trustee company, consider whether all directors are natural persons and, if so, ensure your directors, PSCs and company secretary complete identity verification at Companies House when required. If your board does not comprise of natural persons, seek legal advice as to what changes will be needed to the composition of your board and/or your contractual arrangements with sponsoring employers.
  • If trustees hold a charge or are proposing to take a new charge over UK real estate owned by an overseas company, seek legal advice as to whether and when the registration requirements of the Act must be complied with and liaise with the chargor’s beneficial owner to ensure compliance.
  • If your scheme has any special investment structures or funding vehicles involving subsidiaries or partnerships, as the Bill progresses, seek legal advice as to what restrictions or requirements may apply.

This update was written by Catrin Young and Louise Pettit. Working with our specialist colleagues in our Real Estate and Corporate Teams, we are well placed to advise trustees and sponsoring employers on the forthcoming changes and what must be done to ensure compliance. If you would like to explore this topic further, please contact your usual member of our pensions team.

Key contact

Richard Knight

Richard Knight Partner

  • Head of Pensions
  • Pensions Services
  • Pensions Legal Advice

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