Hong Kong has one of the world’s most transparent and business-friendly landscapes. This has been achieved by introducing the Significant Controller Register (SCR) under the Companies Ordinance (Cap. 622). The Significant Controllers Register Hong Kong came into effect on 1st March 2018 to combat the misuse of company structures such as terrorist funding or tax evasion. Maintaining an accurate SCR is highly crucial for companies in Hong Kong. SCR Compliance Hong Kong is essential as non-compliance may result in hefty fines and penalties for the company.
If you have an incorporated company in Hong Kong, then this is the article you should trust. This guide explains the purpose and requirements of the Significant Controllers Register (SCR) in Hong Kong. This guide includes all the details regarding the Significant Controllers Register Hong Kong. Through this article, you can discover how to comply with SCR non-compliance in Hong Kong, what details must be recorded, and the potential consequences of non-compliance.
What is the Significant Controllers Register (SCR)?
The Significant Controllers Register (SCR) records the individuals and legal entities with significant control over a company. It contains up-to-date information on substantial company controllers. This register aims to provide transparency and reduce illicit activities like terrorist financing and money laundering.
Hong Kong must fulfil its international obligations as a member of the Financial Action Task Force (FATF) regarding Money Laundering and Terrorist Financing (MLTF) issues. Therefore, it amended the Companies Ordinance (Cap. 622) in 2018. According to the new regulations, all incorporated companies in Hong Kong (except the listed companies and certain specified companies) need to identify their significant controllers and maintain an accurate register of their information.
Who Qualifies as a Significant Controller in Hong Kong?
An individual or a legal entity qualifies as a significant controller in Hong Kong under the following criteria.
- The person directly or indirectly holds more than 25% of the issued shares in the company. If the company does not have share capital, the person or legal entity, directly or indirectly, has the right to share more than 25% of the capital or profit of the company.
- The person directly or indirectly has more than 25% voting rights in the company.
- The person directly or indirectly has the right to appoint or remove most of the company’s board of directors.
- The person can exercise significant influence or control over the company.
- The person has the right to exercise or exercise significant influence or control over the activities of a trust or firm that is not a legal person, but whose trustees or members satisfy any of the conditions specified in paragraphs 1 to 4 (in their capacity as such) about the company.
Examples to Illustrate the Criteria
Example No.1: Mr. Chan directly holds 30% of the company’s issued shares, which makes him a significant controller under criterion 1.
Example No.2: Although a company holds only 20% of the shares in a company, it holds 40% of the voting rights in the company. This makes it a significant controller under Criteria 2.
ExampleNo.3: Mr. Lee has the right to appoint five out of a company’s seven directors, which makes him a significant controller under criterion 3.
ExampleNo.4: Let’s assume that XYZ Bank provides a crucial loan to a company under conditions that give it significant control over the company’s financial decisions. This makes it a considerable controller under criterion 4.
ExampleNo.5: A trust holds 60% of a company’s shares. However, Mr. Wong has significant control over the decisions of the trust’s trustees, making him a significant controller under criterion 5.
What details must be recorded in a Significant Controllers Register (SCR) in Hong Kong?
As per the amended Ordinance, the company needs to add the details of the Significant Controllers in Hong Kong.
Registrable Person
- Name
- Correspondence address (P. O. Box is not permitted)
- Identity Document Number- Hong Kong identity card number or the passport number
- Date of becoming a registrable person
- The nature of control over the company
Registrable Legal Entity
- Name
- Legal Form
- Registration Number
- Place of incorporation
- Address of registered office
- Date of becoming a registrable legal entity
- The nature of control over the company
The documentation and evidence supporting the recorded information may include share registers, transfer documents, agreements, or Articles of Association outlining voting rights, board appointment letters, contracts demonstrating significant influence or control, and other similar documents.
It is essential to keep the SCR constantly updated. The SCR update process includes identifying its significant controllers and their particulars and issuing notices to these controllers and relevant parties. After obtaining the necessary information, the SCR should be updated within seven days of the change.
How to Maintain an Accurate Significant Controllers Register (SCR) in Hong Kong?
Some of the practical tips for maintaining an up-to-date and accurate SCR are given below:
- Establish clear procedures
- Regularly communicate with the shareholders.
- Obtain declarations from the individuals or entities who may be significant controllers.
- Monitor triggering events
- Maintaining support documentation
The best practices for record-keeping and data management are as follows:
- Maintain a Dedicated Register
- Ensure Data Accuracy
- Secure Storage
- Maintain an Audit Trail
- Consider Electronic Format
Importance of Regular Reviews and Updates
- Legal Compliance: Regular reviews and updates can ensure compliance with the Company Ordinance and avoid potential penalties
- Accuracy: Regular checks can help you enhance the accuracy of the register and update it when changes occur
What are the Penalties for Non-Compliance with the Significant Controllers Register (SCR) in Hong Kong?
If a company fails to maintain the SCR in Hong Kong, it is considered a criminal offence. The company and its responsible officers are liable for a level 4 fine (HKD 25,000). A penalty of HKD 700 may also be imposed for each day the offence continues. Moreover, if the company unknowingly or recklessly provides false information, then it commits an offence and is liable,
- on conviction on indictment, to a fine of $300,000 and imprisonment for two years, or
- on summary conviction, a fine at level 6 (i.e., $100,000) and imprisonment for six months.
Why is Maintaining a Significant Controllers Register (SCR) Important for Hong Kong Companies?
1. Enhances Transparency and Builds Trust
The SCR delivers transparent information regarding corporate power control by clearly describing those who maintain significant authority over the company. As a result, trust among shareholders, investors, and customers progressively builds up.
2. Risk Management and Due Diligence
The SCR document helps identify the persons controlling the company to a significant extent. The company can evaluate ownership and business control risks through this examination method. The method establishes better evaluation practices for business partner selection and transaction assessment.
3. Combating Money Laundering and Terrorist Financing
Law enforcement agencies and financial institutions can utilize the SCR to combat money laundering and terrorist financing activities. The SCR defines who ultimately owns and controls the company, which can prevent misuse of corporate structure for illicit purposes.
Latest Updates on Significant Controllers Register (SCR) Requirements in Hong Kong
Although there hasn’t been any significant change in the core functionality and requirements of the SCR, it is essential to stay informed about regulatory developments. It helps you avoid potential penalties and legal consequences caused by misinformation or delay. Therefore, you must regularly check the Companies Registry website for the latest updates on the SCR requirements in Hong Kong.
Key Takeaways and the Importance of SCR Compliance
Incorporated companies in Hong Kong (except listed companies and foreign businesses) must maintain an accurate Significant Controllers Register (SCR). If they fail to comply with the amended Ordinance or provide false information, it may result in legal charges and penalties. You can contact a professional for assistance with SCR compliance. An experienced service provider can help you comply with the laws and keep you safe from mistakes and fines.
