The Register of Overseas Entities (ROE): The definitive guide
AML Services Manager
The Register of Overseas Entities (ROE) came into effect on 1st August 2022.
If you work in the real estate/property sector and act for anyone who falls within the below two groups, you must understand the implication of ROE:
Overseas entities in property transactions.
Clients buying or leasing the property from overseas entities.
Deciding to act as an agent for the purpose of ROE needs some serious thought. Keep a written record of your decisions and considerations.
Whether or not you plan on acting as a verifier, if you work within the real estate and property sector ensure that you read the guidance and the legislation. Make sure you are clear on your obligations and liability before undertaking any activity, and remain alert to the inherent risks that could present themselves.
The Law Society details a number of examples in which you are acting for clients who are not overseas entities themselves but are buying from, or leasing to, an overseas entity. As a result you and your client indirectly become involved in the ROE regime.
Some of the possible risks include (but are not limited to):
The overseas entity is not able to obtain the ID number from the ROE. If this is the case they cannot register their interest at HM Land Registry. The seller will remain the legal owner.
A restriction may appear on the title register after exchange. If the completion date falls after the transitional period ends in January 2023, registration of the transaction will not be possible without compliance with the restriction.
The seller transfers the property to the buyer in breach of the act (where the seller is an overseas entity not registered in the ROE at Companies House). This is a criminal offence by the seller and the completion money may be the proceeds of crime.
To ensure your firm is protected, it’s critical to appreciate the differences between The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017(MLR 2017) and Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA 2022).
All the best practice advice published to date on ROE shows that sometimes analysis will be straightforward, while on other occasions it will be very complex. It all depends on the facts available to you.
What is the purpose of the ROE?
To root out bad actors attempting to hide ill-gotten gains through UK property.
What is the government’s objective with the ROE?
The register will require anonymous foreign companies owning or seeking to buy UK property to reveal the true owners, ensuring criminals cannot hide behind secretive chains of shell companies.
Any foreign company wishing to buy UK property will have to identify its beneficial owner and present verified information to Companies House before any application to the UK’s land registries can be made.
Who is affected by the ROE?
Clients who are acting in property transactions involving overseas entities.
Solicitors or other regulated entities who are asked to verify an overseas entity purchasing UK property.
If you are a regulated person who verifies but is found to be not compliant with the law, you will leave yourself open to criminal prosecution, professional negligence claims and reputation damage.
The Law Society’s current stance on the ROE:
‘A critical element of the ROE regime is the requirement to verify independently intangible elements such as the exercise of control. That verification is to be confirmed to Companies House and will subsequently appear on its public record. Given the drafting of the Verification Regulations, the Law Society considers that any law firm acting as a verifier will face significant challenges and expose itself to significant risk, including possible criminal prosecution, regulatory sanction, and reputational damage’.
What is the definition of an overseas entity?
An overseas entity includes a company or organisation governed by the law of a country or territory outside of the UK.
The Republic of Ireland is an overseas jurisdiction for the ROE.
When does an overseas entity have to register with Companies House?
Overseas entities who want to buy, sell or transfer property or land in the UK, must register with Companies House.
Overseas entities who already own or lease land or property in the UK will also need to register with Companies House and update who their registrable beneficial owners or managing officers are by 31st January 2023.
This applies to overseas entities who bought property or land on or after:
1 January 1999 in England and Wales.
8 December 2014 in Scotland.
On or after 1 August 2022 in Northern Ireland.
Entities that disposed of property or land after 28th February 2022 will also need to give details of those dispositions.
Overseas entities will be required to update their registration with Companies House every year, even if there have been no changes to the information previously provided.
What happens if you fail to register with the ROE?
The application will be rejected by HM Land Registry. As a result, it is now an essential part of the conveyancing process whenever an overseas entity is involved to ensure it is registered within ROE.
What is the penalty for failure to comply with the ROE?
Overseas companies that do not comply could face severe criminal sanctions, including fines of up to £2,500 per day (daily default fine) or a prison sentence of up to five years. They will also face restrictions when buying, selling, transferring, leasing, or charging property or land in the UK.
Will ROE be a public record?
Most of the information disclosed to Companies House about overseas entities, beneficial owners and managing officers will be publicly available on the Register of Overseas Entities. This is a real move forward in removing anonymity and improving transparency in the UK. Restricted information will be home address, full date of birth, agent assurance code, date of verification, trust information and email addresses.
Note - if the application is successful, the details that the overseas entity has provided about the agent will be shown on the public register.
Who can act as an agent for ROE applications?
An agent must be based in the UK and supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. They can be an individual or a corporate entity, such as a financial institution or legal professional.
Role of an agent in ROE applications
For an overseas entity to be approved on the ROE, a UK-regulated agent must complete verification checks on all beneficial owners and managing officers of an overseas entity before it can be registered. The overseas entity will need to provide an agent assurance code and an overseas entity verification checks statement to confirm that it has done this.
No one should make a verification statement without being satisfied that the statement is true, and backed up by reliable, appropriate, and independent evidence.
Verification checks must be dated within the last three months, and undertaken on all beneficial owners and managing officers of an overseas entity before it can be registered.
The UK government guidance includes specific sections that relate to requirements around verification of the overseas entity in section 13. Additional sections can be found in The Law Society guidance document (s4 and s7).
Methods of ROE verification
Under the Verification Regulations, verification must be undertaken on documents or information obtained from a reliable source independent of the person whose identity is being verified. In the absence of any further guidance at the current time, The Law Society has said it may be appropriate for solicitors to consider CDD obtained under the MLRs, but only as a starting point.
Pointing law firms directly to section 6.14 methods of verification in brief:
Obtaining or viewing original documents from a trusted and independent source (public or private).
Viewing copies of documents.
Conducting electronic verification.
Obtaining information from other regulated persons.
The Department for Business, Energy and Industrial Strategy (BEIS)’s view on verification under the ROE is that:
The onus is on the overseas entity to provide the relevant person with, or direct them to, documents and information from reliable sources which are independent from the person whose identity is being verified, so they can perform verification checks.
When reviewing documents and information the expectation will be that relevant persons take a common-sense approach, based on reasonable judgement and scepticism, rather than a forensic one.
Having taken the above approach (unless there is good reason to the contrary), documents and information set out in the table included in the BEIS guidance (page 49, Annex 1) could be accepted without the need to carry out further investigation.
What is the definition of a beneficial owner?
A beneficial owner is any individual or entity that has significant influence or control over the overseas entity. You must register any beneficial owner that meets one or more of the following conditions known as the ‘natures of control’;
Holds, directly or indirectly, more than 25% of the shares in the entity.
Holds, directly or indirectly, more than 25% of the voting rights in the entity.
Holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity.
Has the right to exercise, or actually exercises, significant influence or control over the entity.
It is important to recognise that the definition of "beneficial owner" under ECTEA 2022 (Schedule 2, Part 2) is different from that of "beneficial owner" under the MLRs (regulations 5 and 6). A specific analysis of the ROE provisions is necessary before a firm undertakes ROE verification.
What happens after an overseas entity is registered with the ROE?
If the application is accepted, the overseas entity and its beneficial owners and managing officers will be added to the Register of Overseas Entities.
Companies House will email the notice of registration to the overseas entity. This will include the Overseas Entity ID, which must be given to HM Land Registry whenever the entity buys, sells, or transfers land or property in the UK.
What should law firms do to prepare for ROE applications?
If you think you may act as an agent who is able to verify an overseas entity then you should consider carefully:
What information you’re able to verify.
The circumstances in which you’re prepared to do so.
The Law Society has confirmed that solicitors should exercise extreme caution, only verifying what is within their actual knowledge or is based on a qualified, reliable, and independent source(s). The Law Society recently stated that many law firms will conclude that they are unable or unwilling to conduct verification due to the following reasons:
The availability of appropriately experienced and jurisdictionally competent advisers, knowledge of the structure and nature of ownership.
No availability of reliable and independent sources of information.
Verifiers feel they cannot verify the accuracy of certain facts.
If you do proceed, ensure that you keep a written record of your decisions and considerations on the following:
A top-level agreement as to how and when ROE verification will be delivered by your firm.
Have internal procedures in place for the approval of ROE verification requests.
Additional training and internal guidance may be needed to support your firm.
Fresh copies of CDD information for the purposes of an ROE application and consider running this through third-party verification software.
Ensure that an appropriately qualified and experienced individual checks the substance of the application and the nature of control.
Obtain an up-to-date structure chart ensuring there has been no changes.
Take reasonable steps to build the evidence base behind your verification.
Consider obtaining a certificate from an independent source to confirm the factual position.
Check the information given and do not blindly rely upon it.
Secure local law advice as appropriate to support.
Act within your own area of expertise.
It would be beneficial for your firm to also consider;
Updates if needed to the terms of business (considering responsibility, ensuring that the responsibilities for renewal are set out).
Liaise with your insurer. Does your professional indemnity cover this activity?
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