Companies House: Change is Afoot
The Economic Crime and Corporate Transparency Act 2023 (the “Act”) received Royal Assent on 26 October 2023 and has become law. The Act introduces a series of reforms to strengthen the UK's fight against economic crime, with changes implemented in a phased manner to allow for the development of systems, allocation of resources and secondary legislation to support the changes.
As part of the reform, Companies House will receive enhanced powers. It may come as a surprise to some that the Registrar of Companies is just that, an official body that keeps a register of company information. If a document meets basic criteria of format, authentication and delivery then Companies House is obliged to register it. Companies House reforms will mean a shift from minimal verification of the accuracy of information, to having the ability to challenge information that appears erroneous or contrary to sound business practice. The reforms present the biggest changes to Companies House since corporate registrations were established in 1844, with Companies House becoming an active gatekeeper over company creation and a custodian of more reliable data.
What does this mean in practice?
As companies prepare to embrace these changes it is evident that the UK is not merely upholding its global standing in compliance and corporate governance but is engaged and actively shaping the future landscape, preventing the abuse of corporate structures in the UK and improving corporate transparency. The reforms will improve the accuracy of Companies House data to support business decisions and law enforcement investigations, bringing the UK in line with international best practice.
Identity verification
The changes will mean the introduction of identity verification for all new and existing registered company directors, people with significant control, and those who file on behalf of companies, along with enhanced protection of personal information and protection of individuals from fraud. There will be two ways to verify data:
- Directly with Companies House using a digital service that links a person with a primary identity document (e.g. a passport or driving licence); and
- Indirectly using an authorised agent, also known as Authorised Corporate Service Providers (ACSPs), who are individuals or organisations that undertake anti-money laundering (AML) supervised activity. As such, they will have an existing obligation to carry out customer due diligence checks on their clients.
Those who purport to act without authorisation will be committing a criminal offence and could potentially incur a civil penalty. These measures will require new secondary legislation and guidance, as well as system development.
Other relevant changes:
Data quality: Companies House will play a much greater role in disrupting economic crime and preventing abuse of the register. In practice this will mean greater powers for Companies House to query information and request supporting evidence, stronger checks on company names and new rules for registered office addresses (no PO Boxes!).
Electronic Filings: Companies House has made a strategic commitment to becoming a fully digital filing service, which will allow more efficient and secure filings for companies. This adds value to the register and assists in fraud detection.
Confirmation statements: New requirement to supply a registered email address and to confirm that the intended future activities of a company will be lawful.
Information Security: Individuals will be able to apply to suppress personal information from historical documents, and apply to have personal information protected from public view.
Improving transparency of company ownership: New requirements to provide additional shareholder information, and restrictions on the use of corporate directors.
Fee structure: Increased fees in 2024 (https://changestoukcompanylaw.campaign.gov.uk/changes-to-companies-house-fees/). The increased fees will fund the cost of the new powers and the wider package of reforms in the Act. Companies House fees are set on a cost recovery basis, meaning their fees cover the cost of the services they deliver and they do not make a profit on fees.
A number of these measures will take effect from 4 March 2024, with other measures, such as identity verification to be introduced later.
What are the risks of non-compliance?
While non-compliance with reforms could result in negative consequences, (for both companies and individuals), reputational damage and the risk of association with money laundering are the two key concerns which the UK government is attempting to combat with these reforms. As Companies House will also have more effective investigation and enforcement powers which can be exercised on a discretionary basis, using a risk-based approach, they will be able to impose civil financial penalties if an individual is convicted for a ‘relevant offence’ under the Act. The new measures are a positive step forward for companies and directors alike, with Companies House becoming a regulator of companies.
Questions
For further information or queries on these changes and developments, please don’t hesitate to get in touch.