The Financial Services and Treasury Bureau in Hong Kong has recently issued a consultation paper putting forward proposals to enhance the transparency of beneficial ownership of Hong Kong companies, including requiring such companies to maintain a register of persons with significant control (a PSC register) over the company. This register will be open to public inspection.
These proposals have their origin in the requirements of the Financial Action Task Force (FATF) that there should be adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities. FATF attaches considerable importance to this in the international fight against money laundering and other illegal activities.
In order to achieve a statutory regime on transparency of beneficial ownership, the Government intends to amend the Companies Ordinance so as to require Hong Kong companies to obtain and hold up to date beneficial ownership information available for public inspection. Listed companies will be exempted from this requirement as they are already subject to strict disclosure requirements under the Securities and Futures Ordinance.
Meaning of 'beneficial ownership'
How much control or influence does a person need to have to be included in the new PSC registers? An individual who satisfies one or more of the following will be affected:
(a) directly or indirectly holding more than 25% of the shares;
(b) directly or indirectly holding more than 25% of the voting rights;
( c ) directly or indirectly holding the right to appoint or remove a majority of directors;
(d) otherwise having the right to exercise, or actually exercising, significant influence or control; or
(e) having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or a firm whose trustees or members satisfy any of the first four conditions.
Duty to keep PSC register
The Bureau proposes that a company be required to identify and keep a register of people falling into one or more the above categories. This requirement will extend to legal entities with significant control over the company. This is intended for individuals who exercise control through a holding company or other structures. To enable a Hong Kong company to maintain their PSC register, such companies will be obliged to take reasonable steps to ascertain their registerable individuals and legal entities. Companies will also have to enter into their PSC register details of an authorised person responsible for providing information and further assistance to law enforcement agencies when the need arises.
Public Inspection of PSC register
Hong Kong companies will be required to make their PSC register available for inspection by any shareholder without charge or other members of the public on payment of a fee. A company must notify the Registrar of Companies where its PSC register is kept, if not at its registered office.
The consultation ends on 5 March 2017. Assuming the Government decides to introduce draft legislation into the Legislative Council, it is likely Government will wish to see the new Ordinance passed before FATF makes its next evaluation visit to Hong Kong in 2018.