The Economic Crime and Corporate Transparency Act 2023 – bill receives Royal Assent – Companies House to be overhauled

Partner, Helen Mather looks into The Economic Crime and Corporate Transparency Bill.

The Economic Crime and Corporate Transparency Bill was finally given Royal Assent on the 26^th of October 2023. The Economic Crime and Corporate Transparency Act 2023 is part of a wider government agenda to prevent UK corporate structures being utilised to perpetrate economic crime.

Some of the Act’s key objectives according to the Government are to improve national security, boost enterprise, protect people from, and prevent, abuse of the UK’s open economy, help better equip law enforcement to tackle economic crime and to reform Companies House to deliver a more reliable and pro-active service.

The Government have previously explained that the Companies House framework is “manipulated, particularly in the use of anonymous or fraudulent ‘shell’ companies and partnerships. These provide criminals with a veneer of legitimacy to help commit a range of crimes, from grand corruption and money laundering to fraud and identity theft. This undermines our standing as a free, open and trustworthy democracy and undermines the UK’s reputation as a great place to do business.”

The Act contains lots of reforms but some of the key highlights relating to Companies House are:-

• New Powers

Companies House has since its inception been for the most part a passive conveyor of information, however this Act will give it a more active role.  Companies House will have a range of new powers, including powers to:-

• reject and query filings that contain inconsistent information with prior filings or other available information;
• require additional information is provided so it can be determined if a document has been properly completed or delivered;
• require inconsistencies in information provided are resolved;
• remove material from the Register that has previously been accepted;
• disclose information to any person or public authority (e.g. the police)
• impose financial penalties for breaches of the Companies Act 2006;
• remove a company from the register (i.e. strike it off) if it has reasonable cause to believe the information in the registration application is false.

• Identity Verification

As part of the crackdown on fake, untrue or misleading filings at Companies House and corporate structures that are set up in such a way that it is possible to hide the true ownership through the information filed at Companies House, going forward:

• those incorporating companies;
• the directors of companies;
• members of LLPs and directors of corporate members of LLPs;
• nominated registered officers of corporate general partners of Limited Partnerships;
• persons of significant control (PSCs) and a relevant officer of relevant legal entities (being legal entities that are registered as PSCs); and
• other persons dealing with filings at Companies House

must have verified their identity at Companies House.

This is intended to make anonymous filings much harder and prevent companies from using false information to hide those who may be the owners of or liable for any wrongdoing of the company.

As for what ‘Identity Verification’ means, the exact picture of what this process will look like is yet to be revealed as the regulations that will set this out have not been published yet.

• Filing Companies House Documents

Only the following will be able to file documents at Companies House:

• officers or employees of Authorised Corporate Service Providers (ACSPs); and
• individuals or directors whose identities have been verified and who are making the filing in respect of themselves or companies of which they are employees or directors.

ACSP is a newly created registered status under the Act and will be accountants, legal advisers and company formation agents who are able to register as ACSPs because they are already registered with a supervisory body and have existing obligations to carry out “know your customer” (or “KYC”) checks, on their clients.

• Registered email address

Companies will have to provide Companies House with a registered email address for the purposes of receiving correspondence by email from Companies House.

Practical effects on businesses

This Act will no doubt change and shape the future practice of corporate law and the implementation of M&A transactions in the UK, as well as the day-to-day operations of many businesses currently operating.

There will be a transitional period for compliance with some of the provisions of the Act and it is expected that the provisions of the Act will be implemented over time (with the identify verification aspects expected to take years to be implemented given the changes required at Companies House to facilitate this including procuring software to implement the changes).

Whilst these reforms will inevitably create administrative burdens on companies and their advisers, if they achieve corporate transparency and reduce crime then they should be welcomed. Over time they should result in much more confidence in the integrity of the information publicly available about companies.

If you need any advice in respect of the reforms, your company’s Companies House register or dealing with Companies House, please contact a member of the corporate team.