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In October 2014, a paper entitled “Transparency and Beneficial Ownership” was published by the Financial Action Task Force (“FATF”).
Although that paper did not mention Hong Kong by name, the relevant recommendations stated were expressed to be “recognised as the global anti money laundering and counter-terrorist financial standard”.
FATF has consistently stated that there must be adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed by the competent authorities and attaches considerable importance to this in the ongoing and highly publicized international fight against money laundering and against other unlawful activities.
In order to achieve such a statutory regime, the Hong Kong Government now intends to amend the Companies Ordinance (Cap 622 of the Laws of Hong Kong) so as to require all 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 other strict disclosure requirements under the Securities and Futures Ordinance.
As a result of the October 2014 FATF paper, Hong Kong’s Financial Services and Treasury Bureau (the “Bureau”) issued, in early January this year, a “Consultation Paper” to enhance the transparency of the beneficial ownership of Hong Kong companies, including requiring Hong Kong companies to maintain a register of persons with significant control (a “PSC Register”) for each company. Such a register would be open to the general public for inspection.
What does beneficial ownership actually mean
Any person who satisfies one or more of the following will be affected:
(a) directly or indirectly holds more than 25% of the shares;
(b) directly or indirectly holds more than 25% of the voting rights;
(c) directly or indirectly holds the right to appoint or remove a majority of directors;
(d) otherwise has the right to exercise, or actually exercising, significant influence or control; or
(e) has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm whose trustees or members satisfy any of the first four conditions.
The Bureau proposes that each Hong Kong 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 its PSC Register, each company will be obliged to take reasonable steps to ascertain its registerable individuals and legal entities.
Companies will also have to enter on their individual PSC Register details of an authorised person responsible for providing such information and for providing further assistance to law enforcement agencies, as and when required.
Public Inspection of PSC Register
Each Hong Kong company will be required to make its PSC Register available for inspection by any shareholder without charge or by any member of the public on payment of a fee.
A company must notify the Registrar of Companies where its PSC Register is kept, if not kept, at its registered office.
The consultation period ends on 5th March 2017.
Assuming that the Hong Kong Government does introduce legislation into the Legislative Council, it is likely that the Hong Kong Government will want to enact legislation prior to the next FATF evaluation visit to Hong Kong, which is scheduled for October and November 2018.