Born out of the Government's aspirations to improve corporate transparency and reduce economic crime, The Economic Crime and Corporate Transparency Act 2023 (ECCTA) bestows several new powers on Companies House that are hoped will create a level playing field for businesses whilst safeguarding against abuse of the company register by bolstering regulatory measures and enhancing corporate accountability.
In the article below, Myerson's team of specialist corporate lawyers explore some of the ECCTA's key reforms, their implications, and action points for business owners.
All new and existing company directors, persons and relevant legal entities with significant control will be required to undergo an identity verification process, either directly (through Companies House) or indirectly (through a verification statement from an authorised corporate service provider (ACSP)).
The identity verification process aims to reduce the risk of fictitious directors or beneficial owners being registered at Companies House, thereby preventing illicit activities which exploit corporate structures.
Individuals will only be able to deliver documents to Companies House on behalf of another person if:
Such filings will also need to be accompanied by a statement confirming that person's authority and confirmation of their verified status.
As a result of the ECCTA, companies will be required to record a member's full name and service address and to file a confirmation statement containing membership information.
Criminal sanctions will also be imposed on members who fail to provide their full details or a change of details.
There will also no longer be a requirement to maintain a register of directors, directors' residential addresses, secretaries or a PSC register.
Under the ECCTA, a company will only be able to appoint a corporate entity to serve as a director of another company where the entity has legal personality and all its directors are natural persons whose identities have been directly verified.
By shining a spotlight on the members of companies, the ECCTA seeks to enhance corporate transparency and prevent activities such as money laundering and tax evasion.
The ECCTA will bring the most transformative developments to the role of Companies House since its inception 180 years ago.
By enhancing Companies House integrity, the ECCTA contributes to a more effective record-keeping system that will protect individuals and businesses.
At present, Companies House is required to accept and display on the register documents which are filed in good faith and are unable to carry out investigations where underhand activity is suspected.
Criminals have notoriously abused this system by using company registers to conceal illegal activities.
The new legislation bestows upon the Companies House more extensive powers to query and reject filings, seek evidence for, amend or remove information, and, where necessary, share it with law enforcement agencies.
This means that the role of Companies House will transition from a passive registrar to an active custodian.
The ECCTA introduces a new corporate criminal offence of failing to prevent fraud.
A "large company" (as defined by the legislation) may be criminally liable under this new offence where an "associated person" commits a qualifying fraud offence for the company's benefit.
The only defence would be to show that it had implemented "reasonable procedures" to prevent the fraud.
Once guidance has been published to demystify what this requires, companies will need to implement such procedures.
It is anticipated that it will take some time before the provisions of the ECCTA are implemented due to the need for secondary legislation and to allow for the development of Companies House guidance, systems, and processes.
There are, however, things that companies can be thinking about in readiness for the changes set to come into force.
Business owners can leverage the opportunity created by the new legislation to proactively assess their existing corporate structures and show a commitment to corporate transparency.
Embracing these changes will help prevent economic crime whilst also contributing to the overall stability of the UK business landscape and driving economic growth by encouraging investor confidence.
Those responsible for company record-keeping and administration would be well advised to have the following items on their radar:
Companies House getting teeth is going to be a real game changer.
Whilst it will potentially increase the amount of red tape for business owners, it should create a much more secure and accurate record of the Register of Companies.