The Economic Crime and Corporate Transparency Bill (the Bill) sets out a range of measures to tackle economic crime and improve transparency over corporate entities in the UK. The Bill follows, and is intended to complement, the Economic Crime (Transparency and Enforcement) Act 2022 which became law earlier this year and established a new Companies House register of overseas entities that own qualifying real estate in the UK.
The Bill, which is currently at the committee stage in the House of Commons, has been hailed as proposing the most significant changes to Companies House since it was established in 1844. In this article, which expands on our blog post on this topic earlier this year, we look at the key changes proposed by the Bill from a corporate perspective and what this will mean for your business.
Identity verification
Those setting up, managing and controlling UK companies and other UK registered entities will need to have their identities verified, making it harder for company ownership to be hidden through opaque corporate structures.
This will include all new and existing directors, persons with significant control (PSCs) (or directors of relevant legal entities (RLEs), members of LLPs and general partners of limited partnerships.
There will be two options for identity verification:
- direct verification via Companies House; or
- indirect verification through an "authorised corporate service provider". This is an entity who is regulated for the purposes of the UK's anti-money laundering regime and who has applied to Companies House to become an authorised corporate service provider.
The Bill envisages that identity verification will generally be a one-off requirement although there may be instances where re-verification is required (such as when someone changes their name).
The Bill provides that an individual cannot act as a director until their identity has been verified. An individual who fails to verify their identity and acts as a director, and a company that fails to ensure that an individual has been verified, will commit an offence. It also makes it an offence for a person to act as a director unless Companies House has been notified of their appointment within 14 days of such appointment. In relation to directors, the Bill further makes it clear that:
- a person subject to UK sanctions will not be able to act as a director of a company; and
- where a director is disqualified under UK directors' disqualification legislation, that director will automatically cease to hold office on disqualification.
Each PSC must also verify their identity and maintain their verified status as long as they are registered with Companies House and each RLE must verify the identity of their relevant officer and maintain the verified status of their registered officer as long as such RLE is registered with Companies House. While, the relevant company will have the option of providing the required confirmation of verification to Companies House, it will not be required to do so. Instead, Companies House will have the ability to enforce compliance directly against the relevant PSC and RLE.
In addition, there will be identity verification requirements for individuals delivering documents to Companies House on their own behalf or on behalf of another (unless in the course of employment by an authorised corporate service provider).
Corporate directors
Sections 156A-156C of the Companies Act 2006 (the CA 2006) already include uncommenced provisions restricting the use of corporate directors. These restrictions will be brought into force in parallel with the Bill in a bid to promote transparency and make anonymous chains of corporate control a thing of the past.
In effect, the changes will mean that a company will only be permitted to retain/appoint a corporate director if all of the corporate director’s own directors are natural persons and they have been through the identity verification process. Corporate directors must be UK companies or registered entities; overseas corporate directors will not be permitted.
Limited partnerships
The Bill seeks to address the misuse of limited partnerships, including Scottish limited partnerships, by modernising the legal framework that governs them (which dates back to 1907). Specifically, the Bill:
- tightens registration requirements;
- requires limited partnerships to maintain a connection to the UK (as with companies (see above), this will need to be an "appropriate address" and an "appropriate email address" will also need to be supplied);
- increases transparency requirements (including a requirement for an LP to file more information at Companies House, both on initial registration and on an ongoing basis); and
- enables Companies House to deregister limited partnerships which are dissolved, no longer carrying on business, or where a court orders that it is in the public interest to do so.
Limited liability partnerships
The Bill does not cover limited liability partnerships (LLPs). The government has confirmed that secondary legislation will be passed in due course which adapts company law, as amended by the Bill (including identity verification), to the law governing LLPs.
Companies House reform
The Bill proposes that the role of the Companies House will evolve from being a mostly passive repository of information to being an “active gatekeeper over company creation and custodian of more reliable data”. In support of this enhanced role, Companies House will be granted a range of new powers including the power to:
- Query filings and require inconsistencies to be resolved: Companies House may query (and reject) a filing where it appears inconsistent with other information it has or if it has reasonable grounds to doubt whether the document complies with any requirements as to its contents.
- Require additional information: Companies House will be able to request further information in relation to filings (to be provided within a specified period). Failure to comply with such a request will be a criminal offence. This will enable Companies House to query filings that are potentially fraudulent or otherwise suspicious.
- Remove information: Companies House will have the ability to remove filings which were accepted despite not meeting all requirements.
- Share information: Companies House will be emboldened to proactively share information with regulators, law enforcement and other public authorities. It is hoped that this will assist with the objective of tackling economic crime in a concerted fashion.
- Change a company’s registered office address: Companies House will have the power to change a company’s registered address if it is not using an “appropriate address” and sanction a company (including with fines or strike-off from the register) for persistent non-compliance. An appropriate address will be deemed to be a place where the company can acknowledge and receive documents. There will also be a requirement for a company to maintain an "appropriate email address". This will allow Companies House to communicate with companies electronically.
- Query and change a company’s name: Companies will be prohibited from adopting a registered name that poses a risk to the integrity of the register (for example a name which suggests a non-existent link with a foreign government or an international institution). Companies House will have the power to query registered names and direct companies to change their name within a specified time period.
- Impose financial penalties: Companies House will also gain new powers to impose financial penalties for contravention with a range of provisions in the CA 2006.
Improving financial information
The Bill envisages the introduction of industry standard digital only filings (using iXBRL). The Bill also proposes several amendments to the existing filing framework for small and micro-entity companies. The changes include:
- requiring small companies to file a profit and loss account and a directors' report;
- requiring micro-entities to file a profit and loss account;
- removing the option for small companies to file abridged accounts; and
- requiring an eligibility statement for companies claiming an audit exemption.
These changes will add to the administrative burden for some smaller businesses.
Protecting personal information
The Bill includes new measures that will allow those whose details appear publicly on the Companies House register to apply to have certain personal information suppressed from public disclosure. Specifically, directors will no longer be required to detail their occupation on the register and a process will be set up for individuals to suppress this information (along with signatures, the day of date of birth and residential addresses) where it is currently displayed on the register.
Confirmation statement and statutory registers
As a one-off measure, private limited companies will need to provide the names and addresses (as they appear in the company's register of members) of all their members in the first confirmation statement they file following the Bill coming into force. Publicly-traded companies will have to provide names and addresses of members holding at least 5% of the issued shares of any class of the company.
The Bill also makes clear that the name to be included on the register of members in respect of members who are individuals is their full forename and surname (e.g. it will no longer be possible to register with an abbreviated forename).
Private companies will no longer have the option to keep information about their members on the Companies House register instead of maintaining their own register of members. In terms of other registers, there will no longer be a requirement for companies to maintain their own register of directors, register of directors' residential addresses, register of secretaries or PSC register.
Next steps
The Bill is currently in a relatively early stage of its journey through Parliament (being at the committee stage in the House of Commons). In terms of timing, Companies House has indicated that, subject to Parliamentary approval, it expects the Bill to receive Royal Assent in the spring of 2023 (following which the government will introduce the necessary supplementing secondary legislation required by the Bill). Companies House has indicated that it is already working to prepare for the changes that the Bill will require to its systems and processes.
We will continue to follow the progress of the Bill and implementation of the reforms in the coming months.
If you would like to discuss the Bill and what it means for your business, please contact us.