In continuation of the Economic Crime (Transparency and Enforcement) Act 2022 which was fast-tracked through Parliament in March 2022 in response to Russia’s invasion of Ukraine, the UK Government has been increasing its efforts to combat the exploitation of corporate structures in relation to fraud and money laundering. At the forefront of this initiative is the Economic Crime and Corporate Transparency Act (ECCTA) which has progressed steadily within the parliamentary process since 22 September 2022 and has seen several amendments. On 26 October 2023, the ECCTA attained Royal Assent and one institution that is set to experience significant changes under the ECCTA is Companies House. Louise Smyth, the Chief Executive and Registrar of Companies commented that “This is one of the most significant moments for Companies House in our long history” and expressed their focus on preventing abuse of the company register, enhancing fraud prevention, aiding victims more efficiently and rectifying inaccurate information on the register – full details here.
We have previously covered some of the proposed Companies House reforms in our article “How will Companies House Reforms Affect Private Companies and their Directors?“. Generally, the changes we have outlined in that article are expected to happen with the introduction of ECCTA but there will likely be measures which will be introduced by Companies House or secondary legislation to pave the way for a smoother transition.
This article serves to explore the key reforms made in relation to Companies House, potential challenges, and the broader significance of these changes for both corporate entities and the public.
One of the biggest reforms is the introduction of identity verification of directors of companies, members of Limited Liability Partnerships (LLPs), general partners of Limited Partnerships (LPs), persons with significant control (PSCs), relevant officers of registrable legal entities (RLEs) and persons registering companies or filing information with Companies House, which will enhance data accuracy of information on who is filing information on behalf of companies; subsequently supporting any law enforcement investigations. Verification checks will also ensure that individuals establishing and managing companies are identified, preventing criminals from using false identities.
There will be changes on formation of companies such as stronger checks on company names, new rules regarding registered office addresses, the requirement to supply a registered email address and a requirement to confirm that the company is being formed for a lawful purpose (the company will also need to confirm their future activities will be lawful on their annual confirmations statements).
Companies House will have broader powers to oversee company creation and ensure more reliable data. Whilst Companies House currently keeps a register and makes the information on it available for public view, they have limited powers to improve the accuracy of the register. The ECCTA will provide the Registrar with new powers to check, remove or decline information. In addition, Companies House will be able to query any information supplied or already on the register that appears to be suspicious or fraudulent. For example, company names that pose a risk to the integrity of the register and the UK business environment can be flagged, ensuring that any economic crime is captured, and the integrity of the register is upheld.
All companies will be required to file their accounts digitally within Companies House. Currently, 88% of companies already choose to file digitally, thus, the requirement made by the ECCTA will ensure that more companies register their financial information effectively, increasing the reliability and accuracy of the information held on the register, to also reflect technological advancements.
Enforcement powers will be strengthened, and data will be cross-checked with other public and private bodies to proactively share information with law enforcement for the protection of personal information and to prevent fraud and other harm. Companies House will be able to send feedback from the cross-referencing results to the organisations that provided the data to help identify anomalies and fraudulent behaviour on the register which can then be investigated. By having the power to proactively share the suspicious information it has collected with law enforcement, Companies House can effectively help tackle economic crime.
According to Companies House, some of the proposed reforms such as Identity Verification will not be immediately introduced as it will require system development changes and secondary legislation. However, other measures are anticipated to come into effect sooner (from early 2024), including, “sharing data with other government departments and law enforcement agencies” and “taking steps to clean up the register, using data matching to identify and remove inaccurate information”.
Moreover, from political officials to Companies House executives, the ECCTA has received numerous favourable reactions, demonstrating the significance of the impending impact of the ECCTA on the UK’s ability to protect its economy.
Furthermore, whilst the proposed changes to Companies House have been described as long overdue, it has received criticism from those expressing apprehensions regarding the financial capability of Companies House. Companies House has stated that their fees will need to cover the expenses associated with the new powers and its enforcement capacity to effectively execute their extended responsibilities outlined in the ECCTA. Consequently, the fees will be increasing from early 2024. Nevertheless, the increased powers of Companies House will improve the dependability of data within their records and counteract economic wrongdoing. Thus, this will reinforce confidence in the UK’s economy, providing benefits to both businesses and society as a whole.
If you would like to discuss how Companies House reforms will affect your business, Michelmores’ Corporate Services team has a wealth of experience in statutory compliance and all aspects of corporate governance. Please do get in touch with any member of the team or email cosec@michelmores.com.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.
