Eleventh Report of Session 2022–23

Instruments reported

At its meeting on 7 September 2022 the Committee scrutinised a number of instruments in accordance with Standing Orders. It was agreed that the special attention of both Houses should be drawn to two of those considered. The instruments and the grounds for reporting are given below. The relevant departmental memoranda are published as appendices to this report.

1S.I. 2022/725: Reported for requiring elucidation and for doubtful vires

Register of Overseas Entities (Verification and Provision of Information) Regulations 2022

1.1The Committee draws the special attention of both Houses to these Regulations on the grounds that they require elucidation in two respects and that there is doubt whether they are intra vires in one respect.

1.2These Regulations, which are subject to the negative resolution procedure, require certain information about beneficial owners and managing officers to be verified in connection with the new register for overseas entities that own or buy property in the UK.

1.3Regulation 1(1) links commencement of this instrument to section 3 of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA). The Committee asked the Department for Business, Energy and Industrial Strategy to explain what steps will be taken to ensure that this instrument complies with the 21-day rule. In a memorandum printed at Appendix 1, the Department explains that section 3 will be brought into force on 1 August 2022, which is more than 21 days after this instrument was laid. The Committee is grateful for this confirmation and notes that in future it would be helpful to include such information in a footnote or in the Explanatory Memorandum. The Committee accordingly reports these Regulations for requiring elucidation, provided by the Department’s memorandum.

1.4Regulation 6(5)(c) requires the person who is verifying the information to provide a statement to the registrar including the names of the registrable beneficial owners and managing officers whose identity has been verified “but where it has not been possible to obtain full names, so much of that information as it has been possible to obtain”. The Committee asked the Department to explain how it is envisaged that a person’s identity can be verified without their full name. In its memorandum, the Department explains that sections 4, 7 and 9 of ECTEA envisage that it may sometimes not be possible to supply a full name and that the verifier’s obligation is to verify the information it has been given by the overseas entity (which may only be a partial name). The Committee accordingly reports regulation 6(5)(c) for requiring elucidation, provided by the Department’s memorandum.

1.5Regulation 7 provides that a verifier of information must not be a known close associate of the individual whose information they are verifying and that a close associate includes a person who has “close business relations” with the individual (regulation 7(4)(a)). The Committee asked the Department to explain what criteria are intended to be applied in determining the closeness of a relationship. In its memorandum, the Department explains that whether the verifier has “close business relations” with the individual will be assessed on a case-by-case basis and that the term is deliberately not defined in order to ensure that the registrar can flexibly consider each circumstance. The Department gives examples of what may or may constitute close business relations and indicates that it will include this information in guidance. That may be so, but as drafted the regulations are unclear as to what will amount to “close business relations”. Leaving “flexibility” for the registrar is in effect sub-delegating to the registrar the power to determine the core meaning of this provision, which is unlawful in the absence of an express enabling power to that effect. The general power to “make provision” (section 16 ECTEA) is not sufficient to rebut the strong presumption against sub-delegation. To be lawful, the regulations should have made provision by reference to objective criteria (which would not have been difficult, or very different from definitions of connected persons and the like in many places on the statute book, particularly given that the Department intended to articulate these in guidance). The Committee accordingly reports regulation 7(4)(a) for doubt as to whether it is intra vires.

2S.I. 2022/730: Reported for requiring elucidation

Land Registration (Amendment) Rules 2022

2.1The Committee draws the special attention of both Houses to these Rules on the ground that they require elucidation in one respect.

2.2These Rules, which are subject to the negative resolution procedure, implement aspects of the new register of overseas entities referred to in the report on S.I. 2022/725 above and, as with that instrument, link commencement to section 3 of the Economic Crime (Transparency and Enforcement) Act 2022. The Committee asked the Department for Business, Energy and Industrial Strategy the same question as was asked on S.I. 2022/725 and received the same response in a memorandum printed at Appendix 2. The Committee accordingly reports these Rules for requiring elucidation, provided by the Department’s memorandum.

Instruments not reported

At its meeting on 7 September 2022 the Committee considered the instruments set out in the Annex to this Report, none of which were required to be reported to both Houses.

Annex

Instruments requiring affirmative approval

Draft instruments requiring affirmative approval

Instruments subject to annulment

Draft instruments subject to annulment

Instruments not subject to Parliamentary proceedings not laid before Parliament

Appendix 1: Memorandum from the Department for Business, Energy & Industrial Strategy

S.I. 2022/725

Register of Overseas Entities (Verification and Provision of Information) Regulations 2022

1. The Committee has asked the Department for Business, Energy & Industrial Strategy for a memorandum on the following points:

Given that rule 1(1) links commencement of this instrument to commencement of provisions in other legislation, explain what steps will be taken to ensure that this instrument complies with the 21-day rule.

In relation to regulation 6(5)(c), explain how it is envisaged that a person’s identity can be verified without their full name.

In relation to “close business relations” in regulation 7(4)(a), explain what criteria are intended to be applied in determining the closeness of a relationship.

2. Section 3 of the Economic Crime (Transparency and Enforcement) Act 2022 (the ECTEA) will be brought into force on 01 August 2022, which is more than 21 days after this instrument was laid.

3. Under sections 4, 7 and 9 of the ECTEA, the overseas entity may supply to the registrar “so much of that information as the entity has been able to obtain”. The ECTEA envisages that it sometimes may not be possible to supply a full name. Under this instrument, the verifier only has to verify the information it has been given by the overseas entity. For example, if there is only a partial name, evidenced in a document obtained from a reliable source which is independent of the person whose identity is being verified, it is the information on that document which is being verified.

4. Whether the verifier has “close business relations” with the individual whose information they are verifying will be assessed on a case-by-case basis. Examples of close business relations could include where the verifier and the individual have a connection to the same entity, for example both sitting on the same board of directors, or are both a partner in the same firm. It could also include where they are both engaged in a joint venture like a property investment.

5. However, it does not include where the verifier is simply acting as an advisor to, or providing a service to, the individual whose information they are verifying. The term is deliberately not defined in order to ensure that the registrar can flexibly consider each circumstance.

6. This phrase is also used in regulation 35(12)(c) of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and so will already be familiar to practitioners.

7. We will provide guidance on this instrument, in particular on Part 2 (Verification). The above information will also feature in that guidance.

Department for Business, Energy & Industrial Strategy

18 July 2022

Appendix 2: Memorandum from the Department for Business, Energy & Industrial Strategy

S.I. 2022/730

Land Registration (Amendment) Rules 2022

1. The Committee has asked Department for Business, Energy & Industrial Strategy for a memorandum on the following point:

Given that rule 1(1) links commencement of this instrument to commencement of provisions in other legislation, explain what steps will be taken to ensure that this instrument complies with the 21-day rule.

2. Section 3 of the Economic Crime (Transparency and Enforcement) Act 2022 will be brought into force on 01 August 2022, which is more than 21 days after this instrument was laid.

Department for Business, Energy & Industrial Strategy

18 July 2022

Formal minutes

Wednesday 7 September 2022

Virtual meeting

Members present

Jessica Morden, in the Chair

Lord Beith

Baroness Gale

Lord Haskel

John Lamont

Baroness Newlove

Lord Smith of Hindhead

Richard Thomson

Report consideration

Draft Report (Eleventh Report), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1.1 to 2.2 read and agreed to.

Annex agreed to.

Papers were appended to the Report as Appendices 1 to 2.

Resolved, That the Report be the Eleventh Report of the Committee to both Houses.

Ordered, That the Chair make the Report to the House of Commons and that the Report be made to the House of Lords.

Adjournment

Adjourned till Wednesday 14 September at 3.40 p.m.