The Economic Crime and Corporate Transparency Act 2023: What's new for investment funds?
30 November 2023
The Economic Crime and Corporate Transparency Act 2023 (the Act) is part of a global initiative to tackle 'dirty money', fighting fraud, corruption and money-laundering through enhanced transparency and disclosure requirements. In the UK, the Act's wide-ranging measures have joined the Government's toolkit alongside PSC Registers and Registers of Overseas Entities.
UK limited partnerships have been implicated in large-scale international money-laundering operations, such as the USD 2.9 billion Azerbaijani laundromat scheme. The Act seeks to address this by introducing new filing requirements at Companies House for limited partnerships, bringing them more into line with UK companies; and enhancing the role of Companies House as 'gatekeeper'.
The Act comprises over 200 sections within six Parts. In this article, we have discussed only Part 2 of the Act, which deals with limited partnerships.
Timings
Part 2 will come into force on a date which will be determined by way of statutory instrument. No official indication of timing has been released by the Government, but clearly there is still more work to be done in terms of the detail and guidance surrounding the provisions (an example being around the operation of authorised corporate service providers (ACSPs)). The industry is also expecting further clarity on deregistration and its impact on limited liability protections for investors. Our instinct is that these steps will take a number of months.
After the starting gun is fired, a further six-month transitional period will apply (see below).
Application
Part 2 of the Act applies to all UK limited partnerships, including private fund limited partnerships and any UK limited partnerships used as carry and co-investment vehicles or as holding and conduit structures. It extends to England and Wales, Scotland and Northern Ireland.
The Act introduces reforms which will:
- require limited partnerships to create and maintain a connection with the UK;
- tighten registration requirements for limited partnerships;
- impose greater transparency requirements on limited partnerships; and
- empower the Registrar of Companies to deregister certain limited partnerships.
Failure to comply with the majority of the Part 2 obligations will result in a summary conviction or a fine, whilst knowingly providing false statements or not complying with an HMRC request for audited accounts is an indictable offence.
1. Connection with the UK
Requirement of an "appropriate" email address
The General Partner (GP) must ensure that the limited partnership maintains an email address. This should be monitored: emails sent by the Registrar of Companies House should come to the attention of someone acting on behalf of the limited partnership.
This facilitates communications between the Registrar and UK limited partnerships.
Requirement of an appropriate "registered office"
The GP must also ensure that the limited partnership has a "registered office" in the UK where someone is monitoring the post and can accept recorded delivery.
The "registered office" must also be one of the following: (a) the limited partnership's principal place of business, (b) the GP's registered office or principal office, (c) its residential address (where the GP is an individual), or (d) an address provided by an ACSP.
Previous legislation was silent on whether a limited partnership's principal place of business could move abroad. The new provisions ensure that all UK limited partnerships will need to maintain a presence in the UK, regardless of whether the limited partnership's principal place of business moves.
The introduction of the 'registered office' concept caused some consternation to non-UK AIFs, who feared that complying with this requirement would mean re-categorisation as a UK AIF. After fierce lobbying from the industry, however, the good news is that the Act amends the AIFM Regulations 2013 to make it clear that a limited partnership's principal place of business will continue to determine UK/non-UK AIF status.
When Part 2 of the Act comes into force, existing limited partnerships will have a further six-month transitional period for the email address and registered office to be made known to Companies House.
2. Registration requirements
The key registration requirements are set out below:
Classification: Limited partnerships must now use a standard system of classification to specify the nature of their business. This follows Companies House requirements for companies.
Required information: Applications must now contain "required information" about each proposed GP and limited partner (LP), to include the following:
- For partners who are individuals, this includes name, date of birth, nationality, former names (if applicable) and usual residential address (or if outside the UK, the relevant country). The GP additionally needs to provide a service address.
- For partners who are legal entities, the name, principal office, service address, the legal form of the entity and the law by which it is governed will need to be provided. The GP additionally needs to provide details of any register on which the GP is entered and the registration number.
GPs who are individuals will also need to provide photographic ID by way of verification to Companies House; and the "required information" set out above. For corporate GPs, a named individual (the proposed registered officer of that entity, who must be one of the GP's managing officers) must follow the same verification process, along with the "required information" above.
The intention is that, as with PSC registers, every entity registered at Companies House will need to have at least one fully-verified natural person associated with it on the Register. As one might expect, sensitive personal data will not be available for public inspection, e.g. date of birth and residential address details.
Confirmation of no disqualification: A confirmation that the limited partnership's proposed GP or proposed registered officer is not disqualified (under the disqualification provisions in the CA 2006) will be required upon registration.
This requirement excluding disqualified individuals from being a GP puts limited partnerships more in step with companies.
Email address and registered office: Details of the proposed email address and registered office, complying with the requirements set out in the 'Connection with the UK' section above, need to be supplied.
3. Transparency requirements
Annual confirmation statement: The GP of a limited partnership will need to submit an annual confirmation statement to Companies House within 14 days of each review period (as defined below).
The confirmation statement will need to confirm that all of the information on the Register is correct; or provide updates relating to the status of the limited partnership's registered office; its email address; where the GP is a legal entity, its registered officer; where the GP is a legal entity and has one or more corporate managing officers, the named contact of those entities.
This is a new requirement, again taking its inspiration from UK company law requirements.
For existing limited partnerships, the review period begins with their date of registration and ends at the same time as the transitional period (see 'Timings' above).
For new limited partnerships, the review period is simply the twelve-month period beginning with the date of the limited partnership's registration. Subsequent confirmation statements must be submitted every twelve months thereafter.
Notification of changes: Notice must now be given to Companies House within 14 days when there is a change in: GP or LP, the "required information" of an LP or GP, or the registered officer/named contact; or there are any changes to: the registered office address, the email address, or the nature of business (if not a private fund limited partnership).
Existing KYC requirements which apply when onboarding investors should make this task less onerous.
GPs will need to ensure that LPs are aware of their ongoing duty to notify the GP of any changes in a timely manner. For example, this could be the case if an LP is an individual and changes his address; or if the named contact of a corporate managing officer changes.
When Part 2 of the Act comes into force, existing limited partnerships will have a further six-month transitional period for information on GPs and LPs to be made known to Companies House.
Audited accounts: If requested to do so, the GP will need to have audited accounts prepared in respect of the limited partnership in the stipulated format and make them available to HMRC.
Audited accounts are often already prepared for fund vehicles and managed accounts; and full-scope UK AIFMs, to comply with FCA rules. Those accounts will be prepared in the form agreed with relevant investors. For these entities, provided HMRC does not require accounts in another format, the cost implications are negligible.
For non-mainstream vehicles which currently have no requirement to have their accounts audited – for example: coinvests, holding companies, feeder vehicles, carried interest vehicles – this may impose a new and significant expense.
4. Deregistration by Companies House
A limited partnership will be dissolved if it ceases to have a GP; or its GP is insolvent or disqualified; or if it ceases to have any LPs.
The GP will now have to notify Companies House when the limited partnership has been dissolved (within 14 days of becoming aware of the dissolution) and wind up the limited partnership, or take all reasonable steps to do so. If there is no GP at that time, the duty lies with solvent LPs.
The Registrar can now deregister limited partnerships that have been dissolved; or where the GP hasn't complied with certain requirements under the Act, which will allow the Registrar to presume that the relevant limited partnership is defunct. Furthermore, the Secretary of State can apply to the court for the dissolution and winding up of a limited partnership where this is in the public interest.
Previously, it was not necessary for GPs to notify Companies House of a limited partnership's dissolution. The Registrar had no powers to require the dissolution and winding up of a limited partnership, or to remove UK limited partnerships from the Register. However, she now has the power to deregister non-compliant limited partnerships and to present a more up-to-date and accurate Register to the world at large.
Still to be resolved is the question of exactly when and how a dissolved partnership (that is in the process of being wound up) will be deregistered. Winding up can be a protracted process and deregistration during this time is an untenable prospect for LPs, who will lose their limited liability protections on deregistration. In respect of limited partnerships which are AIFs, it would be impractical to de-register a dissolved limited partnership while it is still continuing for the purposes of the winding up process and has third party LPs. Given the sensitivities, we are expecting further clarification from the Government before these deregistration provisions come into force.
Action point for GPs
- Identify all UK limited partnerships. This should include: current entities; historic entities; ancillary vehicles.
- Confirm that all the required information for investors is available.
- Consider if limited partnership agreements need to be amended.
- Check that each limited partnership has fulfilled the email address and postal address requirements.
- Action the obligations when they come into effect.
If you would like to discuss these issues further, please reach out to the Ashurst Investment Funds team.
Authors: Cheng Bray and Radhika Bhatt
