The UK government has introduced the Register of Overseas Entities (ROE). The ROE requires anonymous foreign owners of UK property to reveal their identities. The register was introduced to make it more difficult for foreign criminals to launder money through UK property.
What is the Register of Overseas Entities?
The new register of overseas entities (ROE) created under the Economic Crime (Transparency and Enforcement) Act 2022, came into force on 1 August 2022.
It requires anonymous foreign owners of UK property to reveal their identities. This will allow them to buy and sell land or property in the UK.
The ROE regime applies to an overseas entity that is the registered owner of:
(1) a freehold estate, or
(2) a lease granted for a term of more than seven years on or after 1 January 1999.
(1) Clients who are acting in property transactions involving overseas entities
(2) Solicitors who are asked by clients to verify an overseas entity purchasing UK property
As a solicitor, if you choose to verify but are not compliant with the law, you’ll leave yourself open to criminal prosecution and may be professionally negligent.
What’s an overseas entity?
An overseas entity includes a company or organisation governed by the law of a country or territory outside the UK.
The Republic of Ireland is an overseas jurisdiction for the ROE.
When do they have to register?
(1) Overseas entities buying property in the UK
Overseas entities buying property in the UK must register the beneficial owners on the ROE before they can apply to HM Land Registry to become the registered owners.
The land registration elements of the act come into force on 5 September 2022.
Failure to register could be a criminal offence.
(1) Overseas entities that already own property in the UK
Overseas entities that already hold one or more qualifying estate(s) will have six months from 1 August 2022 to register:
(A) their beneficial owners, and
(B) (in some cases) information on their managing officers and any superior trust(s)
Registration must therefore be completed on or before 31 January 2023.
Failure to register by this date is a criminal offence.
How can Verify 365 help your law firm with ROE?
Verify 365 experts can provide guidance and support to set out areas to be considered by solicitors when undertaking verification responsibilities in respect of the ROE, including highlighting the risks that should be considered.
It’s possible solicitors may mistakenly interpret what’s required for verification under the ROE as being identical to the risk-based approach to client due diligence under the money laundering regulations. The requirements are not the same, and our support can assit you with this.
What solicitors should do now?
Solicitors should approach verification with diligence and caution, only verifying what is within their actual knowledge or is based on a qualified, reliable and independent source.
There’s no presumption that law firms will conduct verification for ROE purposes.
You should consider carefully:
(1) what information you’re able to verify, and
(2) the circumstances in which you’re prepared to do so
When considering the above, speak with:
(1) your compliance officer for legal practice or money laundering compliance officer (as applicable), and
(2) those within your firm responsible for client due diligence
If you think you may verify, it would be useful to:
(1) ensure there’s top-level agreement as to how and when ROE verification will be delivered by your firm
(2) put in place rigorous internal procedures for the approval of ROE verification requests
How Verify 365 can help you manage the risks?
Solicitors should consider carefully:
(1) what information they are able to verify; and
(2) the circumstances in which they are prepared to do so
Solicitors should approach verification with diligence and caution, only verifying that which is within their actual knowledge or is based on a wholly reliable and independent source.
Verify 365 platform can assist you to verify some parts of the relevant information through existing CDD procedures, such as:
(1) a person’s name
(2) date of birth, and
However, for other information, such as which of the beneficial ownership conditions apply and details of any registrable trusts, existing CDD procedures will not suffice. The legal adviser will need to obtain and hold more extensive documentation.
Unless a solicitor is certain that this further information results in their having actual knowledge of beneficial ownership and other matters to be verified, they must not verify.
While CDD information, supported by ongoing monitoring as required by the MLRs should support some of the ROE analysis, the ROE applies a different test using different information.
CDD information might therefore need to be refreshed sooner than would otherwise be the case.
It is important to note that CDD information will not, on its own, be sufficient to form the basis of the information required for verification under ECTEA 2022 and the verification regulations.
When deciding whether and how to verify information, legal advisers will need to consider various things, including:
(1) the extent to which they can rely on information already obtained through CDD procedures
(2) the extent to which that information can be disclosed under data protection law and/or applied for a different purpose to that for which it was provided
(3) whether they need to repeat those checks (for example, because it was undertaken some time ago or the independent legal adviser has become aware of changes)
(4) whether they are qualified to advise on the operation of laws of the relevant jurisdiction(s), and
(5) what reliable and independent evidence is available
In addition, any firm or sole practitioner considering offering verification services should check whether these services would be covered by their professional indemnity insurance.
It is important to note that if the lawyer or the firm conducting the verification commits a criminal offence under the verification regulations, insurance will not alleviate the criminal liability, professional conduct consequences and potential damage to reputation.
From the first anniversary of its first registration there will be a duty on each overseas entity on the register to update its ROE information.
Verification by a relevant person must also be undertaken prior to an overseas entity complying with this annual updating duty.
Solicitors carrying out a property acquisition on behalf of a client to whom the ROE might apply should consider ensuring they are protected by clear professional engagement terms, setting out responsibility (or not) for the submission and verification of an ROE application.
If a law firm decides to conduct ROE verification for a client, it may also be useful to clearly state whether this is for the initial application or may also include the annual updating of the ROE.
Verify 365 therefore recommend that solicitors consider the following:
(1) Ensure that there is a top-level agreement as to how you or your legal practice will deliver ROE verification, including whether you or your legal practice is in a position to conduct verification at all.
(2) Put in place rigorous internal procedures for the approval of ROE verification requests.
(3) Consider asking for fresh copies of CDD information for the purposes of a ROE application and consider running this through third-party verification software (if that is your usual practice for CDD purposes). ROE verification may require and update to CDD information sooner than would otherwise be the case.
(4) Ensure that an appropriately qualified and experienced solicitor checks the substance of the application and the nature of control. Consider obtaining overseas legal advice.
(5) Consider requiring an up-to-date structure chart (the structure and manner of control may have changed since CDD or a PSC Register analysis was conducted).
(6) Take reasonable steps to build the evidence base behind your verification.
(7) Consider obtaining a certificate from an independent source such as Verify 365 to confirm the factual position. Check the information given to you, do not blindly rely upon it.
(8) As appropriate, secure local law advice as to the nature of control to support any ROE analysis.
(9) Act within your own area of expertise. Sometimes a ROE analysis will be very simple and sometimes it will be extremely complicated, it all depends upon the facts.
If your law firm needs further advice and support with the overseas entities buying property in the UK and what solicitors should know about verification and how to manage the risks, please get in touch with Verify 365 Digital Client Onboarding Platform for more information.