Rather lost in all the run-up to the election and the excitement around my holiday, the UK’s Small Business, Enterprise and Employment Act 2015 received Royal Assent on 26 March 2015. It’s something of a ragbag of an Act, but a couple of its provisions have caught my eye. I’ll deal with bearer shares today, and the register of “people with significant control” in a few days’ time.
I first saw a bearer share when I was three: I was about to take a crayon to one that my father had foolishly left on a low table when my mother whisked it out from under my nose. I know: it’s a heart-warming tale of ordinary folk. I’ve never seen one since, though, and find that most people are astonished to hear that they still exist – rather like premium bonds and those whirly gadgets that sliced green beans. A bearer share is a security that is wholly owned by whoever holds the physical stock certificate; the issuing firm neither registers the owner of the stock nor tracks its ownership – so you can immediately see the potential for money laundering. To collect dividends, you have to present a physical coupon to the company, which is pleasingly Dickensian. In today’s modern financial environment, it is very hard to imagine an entirely lawful scenario in which bearer shares would be preferable to a more tracked alternative.
The FATF has been sniffy about bearer shares for years. In its 2012 report to G20 leaders, it suggested strongly that “countries should do one of the following [with bearer shares]: prohibit them, convert them into registered shares, require them to be held with a regulated financial institution or professional intermediary, or require the bearer’s identity to be recorded by the issuing company”. And the UK has finally caught up – not least, I suspect, because of the fall-out from the opening by HSBC in Miami of lots of bearer share accounts for what turned out to be (colour me surprised) shady customers. On 26 May 2015, the section of the new Small Business, Enterprise and Employment Act 2015 will come into force that amends the Companies Act 2006 with regard to bearer shares, such that “no share warrant [to bearer] may be issued by a company (irrespective of whether its articles purport to authorise it to do so) on or after [26 May 2015]”. In addition, Schedule 4 of the new Act “makes provision for arrangements by which share warrants issued before this section comes into force are to be converted into registered shares or cancelled, and makes amendments consequential on that provision”. Please bear with us while we make our amendments.