Existing state of affairs – Quick & Cheap Incorporation
Those wishing to incorporate a company in the UK can currently do so quickly and very cheaply. In 2020-2021 (notwithstanding the throes of the Covid-19 pandemic) Companies House incorporated 810,316 companies. Companies House incorporation fees are among the lowest in the world and 99% of incorporation applications are processed within 24 hours. There are currently 4.4 million active companies registered with Companies House.
Whilst these measures help the UK maintain its position as a global financial centre and an attractive location for investment, recent evidence suggests that our company registration framework has become vulnerable to exploitation. In recent years, some thousands of corporate entities registered in the UK have been identified as being used to facilitate major international money laundering operations. Economic crime costs the UK economy £8 billion per annum.
New Plans – move from data receiver to active gate keeper
Government wants to see Companies House play a more expanded role going forward such that it will move from being a passive recipient of information to a more pro-active gate keeper regarding company creation and custodian of more reliable data. The new role is intended to increase trust in the UK business environment by increasing the accuracy of information held by the Registrar of Companies.
Maintenance of Integrity of the Register
To achieve this the Registrar of Companies will be given powers to query suspicious appointments/filings and will have more extensive legal gateways for sharing data with law enforcement, other government bodies and the private sector.
Move away from anonymous filings
Parties setting up, managing and controlling companies will have a ‘verified identity’ with Companies House, or, will have had their identity verified via an anti-money laundering supervised third-party agent.
All entities registered at Companies House will have at least one fully verified natural person directly associated with them on the public register. All new and existing company directors, Persons with Significant Control (PSC) will need a verified account at Companies House. Crucially, a director would not be registered without a verified account with Companies House. All members and PSC of limited liability partnerships will be required to verify their identity. A director who has not registered at Companies House by the end of a prescribed set period will be committing an offence and may be liable for a civil penalty. Furthermore, a company that is directed by an unverified director will also commit an offence. PSCs will also be required to verify their identity.
In the future, companies would be allowed a maximum of one ‘layer’ of corporate directors, which must be based in the UK and the natural persons directing the corporate director will be subject to identity verification. This, it is said, will make anonymous filings more difficult and discourage those wishing to hide their company ownership through nominee opaque corporate structures.
The government also intends to introduce measures to void the appointment and prevent the registration of individuals acting as directors who are disqualified (without court’s permission) and undischarged bankrupts (without the permission of the court).
Means of tacking fraud – phoenix trading
It is envisaged that frauds committed using phoenix companies (ie registering a company with a similar name to an existing company) can potentially be addressed in the future by way of Companies House having more powerful analytical capability to spot such patterns of incorporation and to then use its new investigatory powers to obtain further information, or, report it to law enforcement. The new intended gateways for data sharing are intended to facilitate this.
Non-consensual use of personal details or addresses
It is currently possible to register an appointment at Companies House without knowledge/consent of the person being registered. Companies House has no powers to confirm consent. It is time-consuming to remove fraudulent appointments from the register, under existing legislation a victim must prove to Companies House that they are not the director and wait 28 days before the appointment is removed from the register. In the case of PSC registrations, a court order must be obtained by the victim to remove the fraudulent registration, which clearly has cost implications to the victim. It is also easy for companies to be registered at addresses without the knowledge of the resident/owner of that address. Throughout 2020/2021 Companies House moved 4,194 disputed addresses to the default address at Companies House.
Going forward, new systems at Companies House will seek to ensure that a person who is registered as a director will automatically receive a digital notification informing them of their appointment and giving them the opportunity to challenge it. It is said that through utilisation of new querying powers and expanded powers to suppress and remove information, that it will be more straightforward in future to have an address or identify removed from the register if it has been fraudulently used and without the need to have to apply to court to do so.
The intended reforms to Companies House operationally and in terms of scope of its role is certainly a welcome move towards making it fit for purpose for 21st century digital working practices. There will certainly be significant new changes if these changes come into effect for both existing and future directors, LLP members and PSCs. It will be interesting to see if the new identity verification measures, once implemented, will have a visible impact on economic crime, or whether committed fraudsters will seek to circumvent the identity verification procedures by having ‘puppet’ directors installed (whose identity will be verified) to whom they will provide direction.
Information drawn from the Corporate Transparency and Register Reform White Paper February 2022.
For further information, please contact:
Laura Smith, Hill Dickinson
laura.smith@hilldickinson.com
