In Part I of this article, we looked at the possibility of a lender being deemed a person of significant control (PSC) in respect of a company it lends to or takes security from, particularly where share charges are part of the security package.
This item will discuss what it means if a lender is a PSC, how banks should react to PSC information requests and how PSC registers may impact on KYC.
A company may serve notice seeking information about possible PSCs on anyone who it knows or suspects knows the identity of a PSC. The Government guidance on the PSC register suggests this could include serving a notice on intermediaries or advisers such as banks. Failure to respond to one of these notices within one month is a criminal offence, punishable by up to two years imprisonment and/or an unlimited fine. Similarly to anti-money laundering legislation, there are very limited exceptions to this requirement (such as genuine legal privilege) and the exceptions do not extend to the data protection considerations of banks. So banks should ensure that they have mechanisms in place to respond quickly to any PSC information requests they receive.
Repeated failure to respond to an Information Request, even if the lender is not a PSC, can result in restrictions being applied to shares by the company. Restrictions can include a block on rights such as voting rights, and a freeze on the sale of those shares. If the lender’s security includes a charge over shares, this could have an impact on the lender’s ability to deal with or enforce its security.
Similarly, a lender that is a PSC should be alert to the need to provide notification, within one month, where it knows or reasonably ought to know that it has become a PSC and it is not on the company’s PSC register and has not received notice from the company. Again, non-compliance is an offence and is punishable by imprisonment or fine. So where a lender thinks it may have become a PSC to a company, it should notify that company promptly, regardless of whether or not the company has contacted them with an information request.
It remains to be seen whether or not a bank will be able to find effective ways to avoid restrictions being placed on shares in which it has an interest. Likely suggestions include:
The PSC register should help banks and other professionals with their KYC requirements as it will result in more publically available information as to the actual control of companies (and other relevant entities). It is, however, worth noting that PSC information only has to be filed at Companies House once a year in a company’s ‘annual confirmation statement’ (which will replace the annual return from 30 June). So for existing companies, PSC information will not be available via Companies House until they file their first confirmation statement after 30 June 2016. The annual confirmation statement of a non-traded company must be accompanied by a list of shareholders so this information will continue to be available.
However, PSC information at Companies House is not updated as changes happen – it’s just confirmed and updated (if necessary) once a year, so banks may not be able to rely on it being up to date. KYC teams may nevertheless find it an additional source of information which may go further than currently available sources when verifying borrowers’ identities.
It seems likely that most lenders will start asking for PSC information as CPs on transactions but that this will be delivered along with KYC documentation because of the additional information it provides, particularly with more complex borrower structures.
The requirement to maintain a PSC register came into effect on 6 April 2016.