As of 1 March 2018, all companies incorporated in Hong Kong are required to maintain a Significant Controller Register (SCR). The requirements for the SCR are set out in Section 59H of the Companies Ordinance (Cap.686) and the register must be maintained at the company’s registered office. This blog post will outline what is required under the new regime and some key considerations for businesses.
Related read: Guide to Company Registration in Hong Kong
The purpose of the Significant Controller Register
The Significant Controller Register is an essential document for businesses in many countries, as it allows them to identify their ultimate beneficial owner and fulfill their anti-money laundering obligations. Created as part of the Guangdong – Hong Kong Closer Economic Partnership Arrangement (CEPA) in 2015, the register has been adopted by a number of countries since then as a way of improving transparency and protecting against fraud. Companies have to disclose all details relating to natural persons with significant control over them, such as owners, shareholders and trustees. Completing the register is an important legal requirement which not only makes sure that transactions are properly recorded, but also goes towards reducing the risk of money laundering and other financial crimes.
Who must maintain a Significant Controller Register
All organisations in Hong Kong are required to maintain a Significant Controller Register (SCR) by June 2018. The obligation falls upon all “Reporting Entities” as defined under the Companies Ordinance and Anti-Money Laundering and Counter-Terror Financing Ordinance. These organizations must provide the updated register within thirty days of any changes made, and should store the information for no less than five years after deregistration. It is important for companies to stay up to date with their current SCR obligations, as failing to do so could result in criminal liabilities and severe penalties such as financial sanctions and criminal imprisonments. To ensure compliance, organizations have been advised to seek professional assistance when in doubt or consult with professionals on SCR keeping guidelines.
The information to be included in a Significant Controller Register
The Significant Controller Register (SCR) is a statutory record of all individuals who have a significant control or ownership stake in a company. It is required to be maintained by Corporations under certain conditions and should contain the details of each individual listed. This includes their name, date of birth, nationality, residential address and service address (if different from the residential address); along with the details of the nature of their significant control over the company. Organizations should ensure that they carefully consider whether any individual has a maintainable significant control over them within the requirements of applicable law prior to including them in their SCR as amendments may need to be made as individuals’ business relationships evolve over time. Careful planning and monitoring can help an organization stay up-to-date with its SCR obligations, creating greater transparency in their business dealings and protection against legal penalties for non-compliance.
How to update a Significant Controller Register
Ensuring your Significant Controller Register (SCR) is accurate and up-to-date is essential to maintaining compliance. This can be achieved by regularly reviewing the SCR and conducting a review at least annually. Depending on the size of your organization, adding a system to track any changes in the SCR may help with accuracy. When any new significant controllers are identified, they should be added as soon as possible: name, date of appointment and residential or office address; or identify information and date current information was obtained. Amendments should also be made if any actions related to the removal of significant controllers occur – such as mergers, acquisitions and change of control – followed by notification of those affected individuals. Lastly, review the SCR for completeness in expressing details about all controlling entities. Maintaining an up-to-date SCR ensures full compliance with all regulatory requirements concerning customer data protection and privacy.
Penalties for not maintaining a Significant Controller Register
Companies operating in Hong Kong must take due diligence to ensure they comply with the requirements of the new Anti-Money Laundering and Counter-Terrorism Financing (Financial Institutions) Ordinance. Companies that fail to properly maintain this may face stiff penalties, as outlined in section 24B of the Ordinance. Companies that contravene this provision can be liable to a fine at level 5 (which on conviction is a maximum of HKD 500,000 per offense), or imprisonment up to two years. It’s safe to say that for companies that don’t wish to incur hefty fines, or even have its directors facing imprisonment, updating and maintaining the Significant Controller Register should be of paramount importance.
The purpose of the Significant Controller Register is to help combat money laundering and terrorist financing. Companies, LLPs, and other entities must maintain a Significant Controller Register if they have any individuals or legal entities that meet the definition of “significant controller”. The register must include information on the individual’s name, date of birth, National ID/Passport number, residential address, email address, position/status within the company, and nature of control over the company. The register must be updated whenever there are changes to an entry on the register or when a new significant controller is identified. Penalties for not maintaining a Significant Controller Register can include fines and imprisonment.