Registers of beneficial ownership for unlisted companies

In brief

Following its initial consultation in 2022, Treasury has released an updated set of “policy specifications” for the proposed introduction of a regime that would require unlisted entities to maintain a public register of their beneficial owners.

The key changes to the proposed regime are to:

• during stage 1 of the regime’s implementation, only grant access to the registers to journalists, academics, entities with AML/CTF reporting requirements and certain regulators/law enforcement agencies (not the general public);
• narrow the definition of “beneficial owner” to cover indirect/direct owners of 25% (previously 20%) of the shares/voting rights in the regulated entity;
• introduce less cumbersome regulatory obligations for certain entities (including director-owner companies and wholly owned subsidiaries); and
• grant ASIC the primary enforcement responsibility under this regime.

Whilst there are a number of positive changes, the proposed regime will still impose a significant compliance burden on many unlisted entities.

Background on the proposed reforms

In late 2022, Treasury released a consultation paper on the Government’s proposal to establish a publicly-accessible register disclosing the beneficial ownership of unlisted entities (the Previous Proposal, link to media release – here). 

Shortly after the release of the Previous Proposal, we published an article providing an overview of the key components of these reforms and our commentary (link to article – here). 

Treasury has now released updated policy specifications (the Updated Proposal, available – here). 

The Updated Proposal largely preserves the key components of the Previous Proposal, while also providing greater detail on the reforms. 

If implemented, these reforms will significantly increase the compliance burden of the roughly 3 million “regulated entities” captured under this regime, which include all Australian:

• proprietary companies;
• unlisted public companies (including companies limited by guarantee (CLBG) and no liability companies),
• unlimited liability companies;
• unlisted managed investment schemes (MISs); and
• unlisted corporate collective investment vehicles (CCIVs).

These updates are significant as Treasury has flagged that the Updated Proposal will underpin the exposure draft legislation which the Government will formally consult on at a later stage.

Overview of updates to the Previous Proposal

Stage 1 access limited to regulators, journalists and academics

The Previous Proposal anticipated that the regime would be implemented in two stages:

• in stage one, regulated entities would be required to establish and maintain their own publicly available registers of beneficial owners; and 
• in stage two, the Commonwealth would maintain a centralised register that would be developed using the registers produced in stage one.

While the Updated Proposal preserves this staged implementation, it is now proposed that fee-free access to a regulated entity’s beneficial ownership register in stage one will be limited to journalists and academics (by submitting a request to ASIC), entities with AML/CTF reporting requirements, and specified law enforcement agencies and regulators. For journalists and academics, it is anticipated that ASIC would be empowered to deny vexatious or excessive requests that would constitute an “excessive diversion of resources” if processed. 

Updates to the definition of beneficial owner and who must be listed on the registers

Definition of beneficial owner

Under the Updated Proposal, registers are generally required to disclose the details of “beneficial owners”, being an individual or entity that:

• is indirectly/directly the owner of 25% (previously 20%) of the shares or voting rights in that regulated entity;
• holds the right, indirectly/directly to appoint or remove (i) a majority of board directors (for companies), (ii) the entity’s responsible entity (for MISs), or (iii) the entity’s corporate director (for CCIVs); or
• has the right to exercise, or actually exercises, “significant influence or control” over the regulated entity.

Who must be listed on the register and tracing through beneficial ownership?

The Updated Proposal provides greater clarity on who must be disclosed on the registers, and how far up the beneficial ownership chain regulated entities must trace for the purposes of their disclosure.

Specifically, regulated entities:

• only need to include a subset of beneficial owners referred to as “registrable beneficial owners” on their registers; and
• where a regulated entity has a “registrable beneficial” owner in its ownership chain, it does not need to continue to trace-through that upstream entity or disclose that upstream entity’s beneficial owners. 

The Updated Proposal provides includes a list of “registrable beneficial” owners that would not require tracing-through:

• natural person beneficial owners; 
• other regulated entities; 
• listed entities; 
• registrable superannuation entities; 
• foreign companies not registered in Australia that have equivalent disclosure obligations in their jurisdiction of registration; and
• other entities that have been deemed lower risk.

Relevant to the last two items in the list above, Treasury does not provide:

• any examples of the disclosure obligations or relevant foreign jurisdictions that would be considered “equivalent” for the purposes of this regime; or
• further detail on either the criteria or process for deeming an entity low risk.

Suppression of personal information of registers

The Updated Proposal provides that an individual may be eligible to have their address and date of birth suppressed on the register if they:

• are under the age of 18 (this suppression will be automatic); 
• have previously been a silent elector approved by the AEC or had their address suppressed by ASIC; or
• can demonstrate that they, or their family, face risks to safety or harm if their full address details are made available.

Updated obligations under the regime

The Updated Proposal clarifies the general obligations provided for in the Previous Proposal being:

• in respect of “registrable beneficial owners”, to identify themselves as such to the regulated entities, and inform them of any changes to the information these entities are required to collect under the regime; and
• in respect of regulated entities, to:
  • identify and verify registrable beneficial owners, and the nature of their ownership;
  • collect, update and retain accurate and up to date records of beneficial ownership information;
  • create and maintain an accurate register of registrable beneficial owners; and
  • provide ASIC access to their register on request.

To reduce the regulatory burden for certain regulated entities, the Updated Proposal provides for a range of more lenient entity-specific obligations summarised in the table below.