Introduction
The Economic Crime and Corporate Transparency Bill (“the Bill”) is the second phase of a significant package of reforms being introduced by the UK Government which are aimed at tackling the abuse of corporate structures in the UK for the purposes of fraud and money laundering.
In the same vein as the Economic Crime (Corporate Transparency and Enforcement) Act 2022 (which came into force last year and introduced the well-publicised ‘register of overseas entities’ at Companies House), within the Bill the Government is seeking to introduce a raft of additional measures which are geared at generally increasing the integrity of the information which is held by Companies House in respect of UK corporates.
The Bill is currently making its way through the House of Lords and it is anticipated that it will receive royal assent during Spring / Summer 2023.
Key Themes
The overarching aims of the Bill are as follows:
- to expand the role and powers of Companies House, moving it from being a passive information depository to being an active monitor of company incorporations and an effective custodian of reliable corporate data;
- to roll out formal “identity verification” measures for all new and existing company directors, persons with significant control, and any person delivering documents to Companies House on behalf of a UK corporate;
- to facilitate the sharing of data between Companies House and law enforcement agencies and others;
- to introduce more robust measures to protect the personal information which is held by Companies House; and
- to improve the quality and usefulness of financial information which is provided to Companies House.
Companies House – new objectives, new powers
At present, Companies House is primarily tasked with storing information in respect of UK corporates, and to making that information available to the public. Its ability to query information which is submitted to it is very limited, meaning that it cannot effectively police the submission of incorrect data or flag suspicious activity among corporate entities.
Clearly, the Government’s view is that the passive role currently played by UK Companies House is a contributing factor to the proliferation of inaccurate data on the register of companies in the UK, which in turn makes it difficult to effectively police illegal activity.
To address this, the Bill establishes four clear Objectives for Companies House going forward:
Objective 1: To ensure that those required to deliver documents to Companies House do so, and that the requirements relating to proper delivery are complied with.
Objective 2: To ensure that documents delivered to Companies House contain all of the information that they are required to, and that the information provided is accurate.
Objective 3: To minimise the risk of information on the register creating a false or misleading impression to members of the public.
Objective 4: To minimise the extent to which companies and other firms (a) carry out unlawful activities; or (b) facilitate the carrying out by others of unlawful activities.
To enable Companies House to meet these Objectives, the Bill includes a range of measures which grant a significant number of new powers to UK Companies House to enable it to properly police the information submitted to it by UK corporates, including:
- the power to reject and query new filings which are inconsistent with data already contained on the register, and to require a person to provide additional information where it is considered a filing contains inaccuracies;
- the power to require inconsistencies appearing on the register to be resolved;
- the power to remove information from the register that has previously been accepted;
- the power to disclose information held by it to public authorities for any purpose which is ‘connected with that authority’s functions’;
- the power to impose financial penalties for breaches of the Companies Act 2006 (as an alternative to pursuing prosecutions through the criminal courts);
- the power to change a company’s name in certain circumstances;
- the power to change a company’s registered office address in certain circumstances (including where the registrar is not satisfied that the address is genuine);
- the power to change a director’s recorded ‘service address’ to that individual’s ‘residential address’; and
- the power to direct that documents be delivered to it electronically.
Eagle-eyed readers will also note that the Bill provides scope for Companies House to increase the fees charged to those using its services (to cover the additional activities which it is being asked to carry out). Fee increases will be confirmed in secondary legislation, but we anticipate increases to incorporation fees and annual filing fees alike which are at least in line with inflation.
Forewarned is Forearmed
It is clear that, once implemented, a number of the measures contained in the Bill will directly impact elements of the ‘day-to-day’ running of UK corporates.
Accordingly, all directors, company secretaries and in-house lawyers at UK corporates should take note of the following aspects of the Bill in particular:
1. Company Registers
All UK companies will need to maintain their own register of members, with the Bill revoking the option for companies to store their register of members on the Companies House central register. Within their register of members, companies must now show the full names of all members (not abbreviations) and their addresses.
There will no longer be a requirement for UK companies to maintain a register of directors, a register of directors’ residential addresses, a register of secretaries or a PSC register, though changes to the information contained in each such register will of course still need to be notified to Companies House. This increases the importance of making timely and accurate filings with Companies House where information changes in respect of the officers or members of a UK corporate.
2. Company Information
(a) Appropriate Email Address
The Bill introduces a requirement that every UK company maintains an appropriate email address. An email address is considered ‘appropriate’ for these purposes if emails sent to it by Companies House could reasonably be expected to come to the attention of a person acting on behalf of the company. A failure by a company to notify Companies House of its ‘appropriate email address’ shall constitute an offence for which the company may be fined.
(b) Appropriate Registered Office Address
There will also be greater scrutiny on the registered office address provided in respect of UK companies. The Bill introduces a new requirement for a company to ensure that its registered office is an ‘appropriate’ address.
An office address is considered ‘appropriate’ if documents sent to it by Companies House could reasonably be expected to come to the attention of a person acting on behalf of the company (and be capable of acknowledgment by that person). There is nothing in the Bill which suggests this need be the company’s principal place of business, and so it would appear safe for companies to continue using up-to-date addresses of, for example, their retained accountants / law firms as their registered office addresses. Whether or not a P.O. Box address will be deemed appropriate is, however, unclear.
Any notification to Companies House regarding a change of address will need to include a statement confirming that the address is an appropriate address.
As mentioned above, where a company’s registered office address is not considered to be ‘appropriate’, Companies House shall have the power to amend a company’s registered office address. It is not clear how this will work practically, but it appears that if Companies House changes a company’s registered office address and the company then fails to lodge an application to notify a new, appropriate, registered office address within a certain period of time, that company could face fines and/or a strike-off action.
(c) Inconsistent Information
As mentioned above, Companies House shall be given greater powers under the Bill to challenge inconsistent or incomplete information which is filed with it by UK corporates.
One of these powers to note in particular is the right for Companies House to order companies to rectify inconsistencies which have been identified in the information held by it. Where a long-running inconsistency or error is flagged by Companies House, this could potentially create a substantial amount of work on the part of the company to correct the error over a long series of filings.
3. Verification Requirements & Procedure
The Bill notably introduces formal identity verification requirements in respect of various categories of person (discussed further below).
Identity verification is a key principle of the Bill, and is geared at making it difficult for a person to file anonymously at Companies House, and/or to hide their interests in UK corporates through opaque ownership structures.
Particularly noteworthy from the perspective of directors, company secretaries and/or in-house counsel is the fact that an individual may not deliver documents to Companies House on behalf of another person, including legal persons such as companies, unless that person’s own identity has been verified by Companies House. This suggests that individual verification will be necessary before routine filings can be made on behalf of UK companies by directors, secretaries and/or in-house counsel.
We know that there will be two routes for an individual to verify their identity: either directly via Companies House, or indirectly through an Authorised Corporate Services Provider (ACSP) such as accountancy practices or law firms which have registered with Companies House.
We understand from Government guidance that, if a person is verifying their identity directly with Companies House, that person will be required to submit a primary identity document, such as a passport or driving licence, to Companies House. That person’s face will then be scanned and compared with their photo ID using likeness matching technology hosted online. Interestingly, this is different to the procedure for entering ‘overseas entities’ onto the Companies House ‘Register of Overseas Entities’, where direct verification is not permitted (meaning all ‘overseas entities’ must have their details verified by a UK-regulated agent).
We further understand that, following implementation of the Bill, existing companies will be granted a transitional period during which to comply with the new requirements around verification. Companies or relevant individuals that do not comply by the end of the period may face criminal sanctions or civil penalties. The online companies register will also be annotated to reflect their unverified status, which could very well go to credibility.
4. Directors
(a) Verification of Directors
All new and existing directors of UK corporates will have to verify their identity (whether directly or using an ASCP) following the Bill coming into force. This obligation extends to all current directors of a UK corporate, irrespective of when they were appointed.
We understand that the first annual confirmation statement filed by a UK corporate following the implementation of the Bill will need to include evidence of each director’s identity having been properly verified. The verification exercise is, accordingly, something that needs to be actioned by all UK corporates promptly after the Bill becomes law and in readiness for the submission of their next confirmation statement.
Going forward, we understand that all applications to incorporate new companies will then need to be supported by evidence of identity verification in respect of all directors to be appointed on incorporation.
UK corporates shall be obliged to ensure that no person acts as a director (or a shadow director) unless and until their identity has been properly verified. In support of this, any statement filed with Companies House confirming the appointment of a new director will need to include a statement from the company that it is satisfied that the director’s identity has been properly verified.
(b) Corporate Directors
The Government has long expressed an intention to ban the use of ‘corporate’ directors in relation to UK corporates. Although the Bill doesn’t formally implement such a ban, we note from the ‘Factsheets’ released by the Government in support of the Bill that it does intend to use its existing powers to restrict the use of ‘corporate’ directors simultaneously with the Bill becoming law.
Particularly, we understand the Government will stipulate that:
- only corporate entities with “legal personalities” (ie companies and LLPs) will be permitted to act as ‘corporate’ directors of UK corporates going forward;
- all the directors of any ‘corporate’ directors will need to be natural persons who have had their identity verified with Companies House; and
- companies with ‘corporate’ directors which do not comply with the above two points will have a period of 12 months to procure that either (1) they become compliant, or (2) are resigned from office.By our reading, the effect of this will be that a UK corporate will only be able to have one “layer” of corporate director(s) going forward. Corporate structures which utilise multiple corporate directors running up and down groups of companies would not appear to be permissible going forward, and so UK corporates with such structures in place will need to address this in good time before the 12-month ‘transitional’ period expires.
5. Persons with Significant Control
(a) Verification of PSCs and Relevant Officers
In the same way that all existing and new directors of a UK corporate must have their identity verified (whether directly or indirectly), the Bill introduces verification requirements in respect of ‘persons with significant control’ of UK corporates.
In particular, each of the following must verify their identity with Companies House:
- any individual who is, by virtue of their shareholding, a ‘person with significant control’ in relation to a UK corporate; and
- any individual who is a ‘relevant officer’ (see below) of another corporate entity which is, by virtue of its shareholding, a ‘relevant legal entity’ in relation to a UK corporate.
These requirements apply:
- where a new company is incorporated which will have a PSC / RLE as at the date of its incorporation.
- each time a company notifies Companies House that a person has become a PSC / RLE in relation to it.
The Bill does not create an immediate requirement for all existing PSCs / RLE’s to have their identities verified. Rather, the Bill envisages that further regulations will be passed in the future which will create a deadline by which all existing PSCs and RLEs will need to comply with verification requirements. Clearly this will be an important exercise for all UK corporates and should be monitored closely following the implementation of the Bill.
(b) Relevant Officers
As noted above, the Bill requires that any corporate entity which (by virtue of its shareholding in a UK corporate) is an RLE must identify a “relevant officer”, verify their identity and maintain that verified status going forward. This will likely be a director (in respect of a company) or a member (in respect of an LLP).
If the identity of the registered relevant officer changes, the RLE must notify Companies House of the change and confirm that the replacement registered relevant officer’s identity is verified.
The purpose of these provisions is to ensure that the verified individual is always traceable for each RLE.
6. Shareholders / Members
The Bill does not require identity verification in respect of shareholders / members.
However, a notable practical consideration for all UK companies is that a full list of its shareholders (including the number of shares of each class held by that shareholder) will need to be provided with the first annual confirmation statement filed following the implementation of the Bill.
7. Accounts
The Bill introduces measures which simplify the rules regarding financial filing requirements for micro-entities and small companies.
In particular:
- micro-entities will be required to file a balance sheet and a profit and loss account only; and
- small companies will be required to file a balance sheet, a profit and loss account and a director’s report (removing the scope for small companies to file abridged accounts).
In support of these amendments, a new ‘aggravated’ criminal offence is created which is committed by any person who knowingly delivers a false, deceptive or misleading filing or statement to Companies House.
Closing Thoughts
Once the Bill has received royal assent, a number of the measures outlined above will likely require implementation via secondary legislation, and so we anticipate a certain grace period before these measures “bite” properly.
It is however clear that, once fully implemented, the changes discussed in this briefing will have a direct impact on those involved in the day-to-day corporate compliance and legal activity of UK corporates of all sizes. Directors, company secretaries and in-house teams would therefore be well advised to acquaint themselves with the measures that will be introduced by the Bill at this stage with a view to addressing any shortcomings in record keeping, policies and procedures.
Should you have any questions on the contents of this article (or the Bill generally), please feel free to contact Alexander Thow or your usual contact within the Hill Dickinson Corporate team.
For further information, please contact:
Alexander Thow, Hill Dickinson
alexander.thow@hilldickinson.com
