Earlier this year we posted an update on the overseas entities registration system created by the Economic Crime (Transparency and Enforcement) Act 2022 (ECA 2022) which aims to reduce the abuse of UK companies and other entities through enhanced corporate transparency in respect of overseas entities.
The Government published the Economic Crime and Corporate Transparency Bill on 22 September 2022 as the second part of this package of legislative reforms intended to further improve transparency as well as enhancing the integrity of the information available about UK entities. The Bill had its second reading on 14 October 2022.
There are three main parts to the Bill but this note focuses on the proposed Companies House reforms, which are motivated by the desire to see its role move towards being a more proactive gatekeeper of company data.
This is emphasised by the objectives which the Registrar will be required to seek to promote:
- to ensure that any person required to deliver documents to the Registrar does so, and that the requirements relating to proper delivery are complied with
- to ensure that documents delivered to the Registrar are complete and contain accurate information
- to minimise the risk of information on the register creating a false or misleading impression to members of the public
- to minimise the extent to which companies and others (a) carry out unlawful activities; or (b) facilitate the carrying out by others of unlawful activities
Expanding role and powers
The Registrar would have new powers, including:
- giving a company a new name where the Registrar is of the view that the registered name contains computer code
- rejecting documents which are not consistent with information held by or available to it (or requiring such inconsistencies be resolved)
- imposing civil financial penalties in certain circumstances (rather than being obliged to take action through the criminal courts)
In addition, the Home Secretary will have additional powers to prevent registration (or direct a change of name) where a company’s proposed name is to facilitate an offence of dishonesty or deception or suggest a connection, where none exists, with a foreign government or international body.
In relation to the sharing of data with law enforcement or other government bodies and the private sector, it is intended that there will be broader scope to do so under the Bill while at the same time setting out measures to further protect the personal information of relevant parties in a company.
Introducing identity verification requirements
Applications to register a company would be required to include a statement confirming that nobody involved with the company (including subscribers, directors, and persons of significant control) are disqualified or ineligible to be directors.
Further, all proposed directors, persons with significant control (PSCs), relevant legal entities (RLEs) or individuals providing documents to Companies House must have verified their identity (either with the Registrar directly or with an anti-money laundering supervised authorised corporate service provider (ACSP)) and must maintain that verified status.
The Bill also proposes some new offences for directors who:
- fail to verify their identity and continue acting as a director, or fail to ensure that an individual has been verified; or
- act as a director without notifying the Registrar of their appointment within 14 days.
Other company information on the register
In addition to the expanded powers of the Registrar and ID verification requirements set out above, there are a number of other new measures proposed, including those in respect of:
- the filing of financial information for small companies (e.g. requiring micro-entities to file a balance sheet and a profit and loss account, and removing the option for small companies to file abridged accounts).
- the registered office of a company being at an “appropriate address” (essentially meaning that an actual person will receive a document addressed to the company, and delivered there by hand or by post).
- companies having an “appropriate email address” (again, essentially meaning someone will actually receive and see emails from the Registrar).
Key point to note
No immediate action needs to be taken in relation to the proposed changes, as the Bill is still in its early stages and has recently been sent to a Public Bill Committee for line by line examination. The Committee is scheduled to report back by 29 November 2022.
It is worth noting, however, that if the Bill passes through Parliament in more or less its current format, the main changes for corporate entities to start considering and preparing for at the moment are likely to relate to the new identity verification requirements for directors, PSCs and any person filing documents on behalf of the company.