The Companies (Amendment) Bill 2017 (the Bill) was recently published by the Hong Kong government and is under consideration by Hong Kong’s Legislative Council. The Bill seeks to amend the Companies Ordinance (Cap 622) (the Companies Ordinance) to require certain companies incorporated in Hong Kong to obtain and maintain information about beneficial owners. Subject to the Bill being passed, it is expected that the amendments will come into operation on 1 March 2018.
The Bill was published along with the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Bill 2017 (which we discussed here) following a public consultation earlier this year. The stated aim of the two bills is to align Hong Kong’s regulatory regime with international recommendations published by the Financial Action Task Force (the FATF), an inter-governmental body which promotes the implementation of measures for combating money laundering and terrorist financing.
The principal proposal as set out in the Bill is that certain companies incorporated in Hong Kong will be required to identify the persons who have “significant control” over the company and maintain certain information about such persons in a “register of significant controllers” (the Register), which will be available for inspection by certain law enforcement officers (and the Hong Kong Companies Registry for compliance purposes) in order to enhance the transparency of corporate beneficial ownership in accordance with the recommendations of the FATF.
The key points as proposed in the Bill are summarised as follows:
- All companies incorporated under the Companies Ordinance in Hong Kong will be under a duty to keep a Register (each an Applicable Company), except for listed companies which are subject to disclosure obligations under the Securities and Futures Ordinance (Cap 571). Aside from the exemption for listed companies, there is no carve out for any other type or class of company (such as dormant companies or companies being wound up), but a general rule-making power has been reserved for the Secretary of Financial Services to exempt types or classes of company from the duty in the future. Non-Hong Kong incorporated companies registered in Hong Kong are not subject to the duty.
- A person has significant control over an Applicable Company if they meet one or more specified conditions. The conditions are broadly drafted to cover a person who ultimately has a controlling ownership interest in an Applicable Company (such as holding more than 25% of the issued shares or the voting rights) or a person who exercises control of the Applicable Company through other means (such as holding the right to appoint or remove a majority of directors of the company). Although the Bill sets out interpretative provisions for these conditions, it is anticipated that additional clarificatory guidance will be issued by the Hong Kong Companies Registry (as was done in the UK when a similar beneficial ownership registration system was introduced in 2016).
- The Bill divides significant controllers with registrable interests into two types: natural persons and certain governmental entities (registrable persons) and corporate structures (registrable legal entities). To minimise the administrative burden for Applicable Companies, a legal entity with significant control would only need to be registered if it is a direct shareholder of the Applicable Company. Also, a natural person who holds the significant control of an Applicable Company through a listed company is not a registrable person. For simplicity, in the remainder of this blog post we refer to registrable persons and registrable legal entities as significant controllers.
- An Applicable Company is under a duty to take reasonable steps to ascertain and identify its significant controllers. When it is known or there is reasonable cause to believe that a person is a significant controller, notice is given by the Applicable Company to such person (or to a person who knows or is believed to know the identity of such person). The addressee required to confirm or provide (as appropriate) certain particulars relating to the significant controller, such as the name of the significant controller and the nature of the control, such particulars are then recorded in the Register. The Applicable Company is also under a duty to keep the particulars relating to the significant controllers up to date. A Register must be kept even if there is no significant controller.
- At least one person must also be designated by the Applicable Company as its representative to provide assistance to the law enforcement officers and the Hong Kong Companies Registry in relation to the Register.
- Fines may be imposed on: (i) the Applicable Company (and each of its responsible persons) for failure to have a Register and to keep it up to date; and (ii) addressees of the notice (sent by an Applicable Company to identify its significant controllers) for failure to supply the required confirmations and/or particulars within 1 month of the date of the notice (with certain safeguards against frivolous or vexatious notices). There are, however, criminal sanctions for a person who in purported compliance with a notice (sent by an Applicable Company) knowingly or recklessly makes a statement or provides any information that is misleading, false or deceptive in a material particular.
Although measures to combat money laundering and terrorist financing are to be welcomed, there may be concerns that the proposals are too onerous. However, it should be noted that the requirements have been scaled back from the proposals set out in the consultation and the proposed regime compares favourably to the systems in jurisdictions like the UK, for example:
- The Register will not be available for public inspection as was originally proposed in the consultation. The information on the Register will only be available to certain law enforcement officers on demand and to a person whose name is recorded on the Register on their request. In the UK, the relevant register may be inspected on request by any person without charge (a company must allow such request or apply to the court for a direction not to comply, which will be granted if the company can satisfy the court that the request is not sought for a “proper purpose”) and companies subject to the requirements must register information about their significant controllers with Companies House which maintains a publicly accessible register.
- Any entry in relation to a significant controller may be removed from an Applicable Company’s Register and destroyed after the end of six years from the date on which the person ceased to be a significant controller. This period is ten years in the UK and in the original proposal in the consultation.
- In the UK, there is also a duty on significant controllers to proactively notify the relevant company of their interests. In Hong Kong it was decided not to create such a duty due to the likely burden on those forming, owning or controlling companies.
As the Bill is still under consideration by Hong Kong’s Legislative Council, there are no practical steps to be taken at this stage. However, responsible individuals at the Applicable Companies should take note of the new duties as well as the likely date for enactment of the Bill (1 March 2018). It is expected that further practical guidance will be issued by, amongst others, the Hong Kong Companies Registry. Responsible individuals at the Applicable Companies should take note of such information, in addition to the transitional provisions of the Bill, to ensure compliance when the new requirements come into force.