UBO Registry in Cyprus: Proposed Changes to Penalty System
G Kouzalis LLC Your Corporate Lawyers in Cyprus is here to inform you as to The Ultimate Beneficial Owner (UBO) registry has been through of significant discussion in Cyprus, particularly concerning the penalties imposed for non-compliance. Recent developments in the Parliamentary Commerce Committee suggest a potential overhaul of the current penalty system, aiming to address concerns about the severity of fines while maintaining the integrity of the registry.
Current Situation and Proposed Changes
The existing penalty structure for non-compliance with UBO reporting requirements has been criticized as excessively punitive, particularly for small and medium-sized enterprises (SMEs). According to the Registrar of Companies, Irene Mylona Chrysostomou, fines totaling between €13 million and €14 million have been imposed thus far, with only €600,000 collected.
The proposed changes, which have received positive signals from the government, include:
- Deletion of existing fines
- Introduction of a one-time penalty of €250
- Significant reduction in future penalties
These proposals aim to balance the need for compliance with the economic realities faced by businesses, especially in the aftermath of global economic challenges.
Legislative Process and Stakeholder Positions
The Parliamentary Commerce Committee is currently discussing a bill that would reduce both the daily and maximum financial penalties for failing to submit UBO information. The government, represented by the Ministry of Finance and the Department of Registrar of Companies, has expressed openness to these changes.
Key points from the discussions include:
- The government is considering halving the maximum fine to €10,000, to be imposed once rather than on each director and the company separately.
- Future penalties remain under discussion, with some parliamentarians suggesting a €2,000 fine.
- A working group comprising the Ministry of Commerce, Ministry of Finance, and Legal Service is examining the partial revocation of existing fines and the imposition of a one-time fee of approximately €250.
Rationale for Change
Several factors have contributed to the push for reform:
- Disproportionate Impact: MPs have highlighted cases where small family businesses face cumulative fines of up to €80,000, with each official or director liable for €20,000.
- System Compatibility Issues: Concerns have been raised about the compatibility of the current system with the process of information registration.
- Economic Considerations: There is a recognition that while compliance is necessary, the current system risks causing significant financial harm to individuals and companies.
- Timing: With the October deadline for information updates approaching, there is urgency to address these issues promptly.
Stakeholder Perspectives
Various stakeholders have weighed in on the proposed changes:
- Parliamentary Representatives: MPs from different parties have generally supported the move towards more lenient penalties. Averof Neophytou, presiding over the committee, emphasized the need to find a solution that ensures compliance without destroying businesses.
- Cyprus Bar Association: Representatives have requested a three-month grace period for paying the proposed €250 fine.
- Political Parties: DISY, DIKO, EDEK, and the Democratic Alignment have all expressed support for the proposed changes, citing concerns about the impact on SMEs and the uniquely strict nature of Cyprus’s current legislation compared to other jurisdictions.
- Green Party: MP Stavros Papadouris described the current fines as “automatically imposed exhaustive penalties” and supported the proposed reforms.
Legal and Compliance Considerations
While the proposed changes aim to alleviate the financial burden on businesses, they raise important questions about maintaining the effectiveness of the UBO registry:
- Balancing Act: The challenge lies in creating a system that encourages compliance without being overly punitive.
- Regulatory Alignment: Any changes must ensure that Cyprus remains compliant with EU and international standards on beneficial ownership transparency.
- Enforcement Mechanisms: With reduced financial penalties, alternative enforcement methods may need to be considered to ensure the accuracy and timeliness of UBO information.
- Legal Certainty: The retroactive deletion of fines, while beneficial to businesses, may create legal uncertainties that need to be carefully addressed in the final legislation.
Future Outlook
The proposed changes are still under discussion, with final decisions expected in upcoming committee sessions.
- The exact amount of the one-time penalty (currently proposed at €250)
- The structure and amount of future penalties for non-compliance
- Any provisions for grace periods or phased implementation of the new system
- Potential additional measures to ensure compliance beyond financial penalties
In light of these complex and evolving regulatory requirements, businesses and individuals operating in Cyprus may find themselves in need of expert guidance. G Kouzalis LLC Your Lawyers in Cyprus stands ready to assist with all compliance matters related to the UBO registry and other corporate governance issues. With our in-depth knowledge of Cypriot law and experience in navigating regulatory changes, G Kouzalis LLC Your Lawyers in Cyprus can provide invaluable support in ensuring that clients remain compliant while minimizing potential penalties and disruptions to their operations.