Economic Crime and Corporate Transparency Act – what you need to know about the corporate transparency reforms
The Economic Crime and Corporate Transparency Act 2023 (the Act), which received Royal Assent on 26 October 2023, represents the most significant change to the role of Companies House in its long history.
The Act gives Companies House new powers to query, remove and reject information submitted to it and more effective investigation and enforcement powers (including the ability to cross check data and share information with external bodies), enabling it to become a more active gatekeeper over company incorporations and a custodian of more reliable data.
Corporate transparency reforms
In addition to expanding the role and powers of Companies House, the Act introduces far-reaching corporate transparency reforms which will affect every UK company, with similar reforms to be introduced for limited partnerships and LLPs.
All new and existing directors, people with significant control (PSCs) and persons submitting information to Companies House will be required to verify their identity. Details of the verification process will be contained in as yet unpublished regulations. There will be two methods of identity verification: direct verification via Companies House, which will link a person with a primary identity document, such as a passport or driving licence, and an indirect route through an Authorised Corporate Service Provider (ACSP) supervised for the purposes of money laundering regulations and authorised by the registrar to verify their identity.
Once the identity verification provisions come into force, proposed directors of new companies will need to be verified before the company is incorporated. New directors of existing companies will be required to verify their identities before their appointment is notified to Companies House (which must happen within 14 days of appointment). Companies House will contact new unverified PSCs to require verification. There will be a transition period to provide existing directors and PSCs time to verify their identities, but this is expected to be required by the time of the company's first confirmation statement following commencement of the provisions.
Verification is expected to be a one-off exercise for each individual, regardless of the number of companies in relation to which they require identity verification, with reverification only required in a very narrow range of circumstances such as where fraud is suspected.
Directors and PSCs who do not verify their identity will commit a criminal offence, as will companies with an unverified director (and every officer of the company). In addition, incorporation of any new company without verified directors will be rejected and individuals whose identities are not verified will be unable to continue to file information on behalf of companies. The company register may be annotated to show that an individual is unverified and unverified directors could be prohibited from acting as a director. However, failure to verify a director's identity will not affect the validity of that person's acts as director.
Ban on corporate directors
Alongside the provisions of the Act, the government is planning to bring into force a restriction in the Companies Act 2006 on the use of corporate directors for UK companies. Corporate directors will be prohibited unless all the directors of the corporate director are natural persons and, prior to their appointment as directors of the corporate director, all of those natural person directors have had their identities verified.
Companies with corporate directors will be given 12 months to ensure their corporate directors are compliant with the conditions or have them resign. New companies or companies appointing a new corporate director must ensure they satisfy these conditions from the date the measure comes into force.
A company's register of members will be required to include shareholders' full names (not just initials and a surname) and a service address for each shareholder.
Companies will no longer be required to keep their own registers of directors, directors' residential addresses, company secretaries and PSCs, although they will still be required to file the relevant information with Companies House.
In relation to PSCs, the government intends to collect and display more information from companies claiming an exemption from the requirement to provide details of their PSCs, including the reasons for the exemption, and any conditions satisfied to allow a relevant legal entity (RLE) to be recorded as a PSC including, if listed, which market the RLE is listed on.
Each company must provide an "appropriate" email address to Companies House, meaning that emails sent to the email address by Companies House would, in the ordinary course of events, be expected to come to the attention of a person acting on behalf of the company. The email address will not be made publicly available.
Registered office address
Each company must also ensure that its registered office address is "appropriate", meaning that documents sent to the registered office address would, in the ordinary course of events, be expected to come to the attention of a person acting on behalf of the company and be capable of being recorded by the obtaining of an acknowledgement of delivery.
Companies House will have the power to change a company's registered office address where it is satisfied that the company is not authorised to use the address and will be able to impose more stringent sanctions on those failing to provide an appropriate registered office address.
At the time of the first confirmation statement after the legislation comes into force, existing companies will be required to deliver to Companies House a one-off shareholder list, the company email address and confirmation that all directors have had their identities verified.
In addition, at the time of each annual confirmation statement, companies will be required to deliver a statement that the intended future activities of the company are lawful.
On incorporation of a new company, the subscribers will be required to confirm that they have not been disqualified as directors and that the company is being formed for a lawful purpose. The first directors must have had their identities verified and the company formation agents must be approved by Companies House as ACSPs before forming new companies or making filings.
Filing documents at Companies House
Once the relevant provisions come into force, Companies House will only accept filings from individuals (on their own behalf or on behalf of their employer) who have had their identity verified and confirm that they have authority to file on behalf of the company, or from ACSPs or employees of ACSPs with permission from the company to file on its behalf.
Other reforms introduced by the Act include provisions which will make it easier for prosecutors to pursue companies in the UK for criminal offences, including through the introduction of a new strict liability "failure to prevent" fraud offence and a change to the existing test for attributing liability for economic crime to a company.
When will these reforms take effect?
Most of the Act will be implemented via secondary legislation which is yet to be published and some of the changes, such as the identity verification requirements, will require development of Companies House systems before they are introduced.
However, a new Companies House blog post sets out certain early measures expected to come into force in early 2024, including:
- The new powers for Companies House to query, remove and reject information provided to it and to share data with other government departments and law enforcement agencies.
- The new requirements for "appropriate" email addresses and registered office addresses.
- The new requirements for companies to confirm they have a lawful purpose on incorporation and in subsequent confirmation statements.
The blog post also notes that Companies House will be increasing some of its fees from early 2024 to ensure that they cover the cost of the services it delivers.