An update on the register of overseas entities regime – ECTEA, ECCTA, ETC.!

We are fast approaching the second anniversary of the end of the transitional period during which all overseas entities (OEs) holding a qualifying estate (a freehold interest or a leasehold interest granted for a term of more than 7 years) in England and Wales needed to register on the register of overseas entities (ROE) pursuant to the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA).

To date there are over 31,000 entities on the ROE held at Companies House. However, registering on the ROE is just the tip of the iceberg in terms of compliance with economic crime legislation and the ROE regime has proved to be a significant administrative burden for those OEs owning or wishing to transact in the UK property market.

Setting aside the initial challenges originating mainly from transactions being caught in or straddling the transitional period, compliance with the updating duty has proved to be one of the main stumbling blocks in practice.

ECTEA

Once registered, ECTEA requires OEs to update their register entries annually. The first update period is 12 months beginning with the date of the OE’s registration and subsequent update periods run for 12 months following the end of the previous update period. The deadline for updating the ROE is 14 days after the end of the update period. Failure to comply means that an OE’s ID will be invalid, and it will not be valid again until the updating process is complied with.

OEs and their advisers need to be alert to their updating duties but so too do those they are transacting with. From an administrative point of view, the ROE can easily be checked to ensure that a counterparty is compliant and if an update deadline has been missed there will be a warning displayed that the latest update is overdue.

If, however, a transaction is taking place around the time that the ROE is due to be updated then the parties to a transaction may need to factor this into the transaction timetable to ensure that the updating exercise is completed and the OE in question is able to produce a valid OE ID.

ECCTA

As discussed in ‘A further aide to crackdown on economic crime and corruption in the property sector?‘, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) adds further layers of complexity to the ROE regime. The plot therefore thickens from a compliance perspective.

Under ECCTA, an OE will no longer be treated as a registered OE unless it has not only complied with its updating duty but also complied with any notice served by the registrar of companies under a new power contained in s.1092A of the Companies Act 2006. This new power referred to as a Section 1092A notice enables the registrar to require additional information to determine whether applicable filing obligations have been complied with. It is therefore vital for OEs to ensure that any s1092A notice is dealt with promptly as well as for those transacting with an OE to be confident as to the registered status of that entity.

The issue is that whilst, as mentioned earlier, it is a relatively straightforward process to check the ROE to determine whether an entity has complied with its updating duty it is not yet clear how counterparties will be able to establish whether a Section 1092A notice has been complied with.

Companies House has not yet issued any notices under this new power and guidance indicates that Companies House will provide an update through their usual communication channels before starting to issue such notices. Compliance with Section 1092A notices will however be something that needs to be factored into the due diligence process in due course.

ETC.

ECTEA was rushed in at pace in 2022 in the aftermath of the invasion of Ukraine and the pace of legislative change has been fast and furious since. ECCTA was introduced not only to tidy up the loose ends and close some of the loopholes that ECTEA left in its wake but also to drive forward the legislative agenda to enhance corporate transparency and combat economic crime more generally.

It is thought that at least 50 statutory instruments are likely to be needed to underpin the full operational roll out of ECCTA. The requirement on OEs to provide title numbers of all qualifying estates that an OE owns as part of both the initial registration process as well as the ongoing updating duty is just one of the remaining provisions in ECCTA relating to the ROE we expect to be introduced in the near future. The reality is that the current legislative landscape looks more like ECTEA, ECCTA, ETC, ETC, ETC.!

How we can help

If you would like further advice or information on anything contained in this article, contact our real estate team.