Number of newly registered Scottish Limited Partnerships, often used as binary options fronts, declines

Maria Nikolova

The new rules that oblige Scottish Limited Partnerships to disclose the identity of their beneficial owners lead to a sharp drop in new registrations.

The new rules that force Scottish limited partnerships (SLPs) to disclose the identity of their beneficial owners seem to have had an effect. According to an analysis by Scotland’s Herald, the number of SLPs registered in the week when the announcement of the new rules was made was 116. There were meager 7 such registrations in the week when the new rules had to be applied. By comparison, in the same week in 2016, there were 131 registrations.

As FinanceFeeds has noted in earlier reports, SLPs are often used as binary options fronts. In November last year, the number of SLPs fronting for binary options websites was around 30. A report by the Scottish Herald from May this year claims that 43 Scottish shell companies act as corporate fronts for binary options sites. Of these, 41 are Scottish limited partnerships.

However, the drop in the number of new SLP registrations has been accompanied by a rise in the number of registrations of English Limited Partnerships. The Herald estimates that at least 140 English shell companies offer smokescreen for binary options websites.

In the meantime, the new rules for SLPs have come under fire. A recent report by the House of Lords’ Secondary Legislation Scrutiny Committee. The Committee notes, for instance, the confusion resulting from the requirements concerning the “persons with significant control” (PSC).

“The “person with significant control” test is set as someone with the right to receive 25% of the assets on winding up. In many partnership agreements it is not clear in advance what percentage of assets will be received by an individual partner. Many partnerships provide for the priority repayment of subscribed capital, often to the original partners, with the remaining surplus distributed in different proportions, sometimes prioritising newer younger partners. The percentage of the total assets received by each partner will therefore depend not only on the individual percentages but also on the relative balance between subscribed and retained capital”, the report says.

The report also points out that such requirements are associated with a bureaucratic process and certain costs, and that there has been “no assessment of the effectiveness and value for money of the bureaucratic process proposed, particularly as compliance costs are inevitably passed on to the customer”.

The new Scottish regulations have been in the focus of the attention of law firms too, with a notable example being Shepherd and Wedderburn LLP. According to Peter Alderdice and Roderick MacLeod of Shepherd and Wedderburn LLP the new rules contain a number of drafting flaws or errors that need to be clarified or amended.

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