November 28, 2023 The Economic Crime and Corporate Transparency Act 2023: A Focus on Corporate Aspects
Information at Companies House has long been criticised for being filed on a ‘trust’ basis, whereby anybody can file unverified information. There are examples of various humorous filings exposing this, including ‘Jesus, Holy Christ’ acting as a director, but there are also many more filings that are likely fraudulent and harmful.
Following on the heels of the Register of Overseas Entities last year, the Government has introduced legislation that will improve the accuracy of the information recorded at Companies House in an aim to combat economic crime.
The legislation includes the following key areas:
- verification of the identity of directors and persons of significant control;
- verification of those delivering documents to Companies House;
- introducing the concept of an Authorised Corporate Service Provider (ACSP) which appears to be similar to a UK Regulated Agent under the Register of Overseas Entities;
- extending offences for filing false information; and
- introducing significant new filing requirements for limited partnerships (which we will cover in a separate article).
This note focuses on those reforms that will have an impact on the incorporation and management of UK companies. We summarise what’s changed and look more closely at some of the practical implications of what the changes mean.
Background
The Economic Crime and Corporate Transparency Act 2023 (ECCTA) received Royal Assent on 26 October 2023 and will make various amendments to the Companies Act 2006 (CA) when the relevant provisions come into force.
Identity Verification
The ECCTA introduces broad identity verification requirements for the following individuals:
- New and existing company directors
- Persons with Significant Control (PSCs)
- Relevant Officers of Registerable Relevant Legal Entities (RRLEs)
- Any individual who delivers documents to Companies House (unless that person is an employee of an ACSP)
There will be two ways to meet the verification requirements. An application for verification can be made directly to Companies House or an ACSP can carry out the verification process on your behalf.
The details of what the verification process involves will be set down in technical regulations drafted by Companies House and are expected to evolve over time. An individual’s identity will only need to be verified once in respect of all appointments.
Elemental will be able to complete the verification process for clients and their advisors with a fully managed service. This will be a simple solution which avoids needing to register as ACSPs and/or staying up to date with the latest requirements which we will regularly monitor and apply. Ultimately such checks will need to be performed thoroughly and to the standard laid down by Companies House to avoid committing an offence (see below). Elemental can remove the hassle from the process.
Company Directors
A director will not be able to act as a director until their identity has been verified. The practical significance of this is that an individual’s identity should be verified in good time ahead of their appointment to the board.
Existing directors will need to file evidence of their identity being verified at the same time as filing the company’s first confirmation statement after the provisions are in force. A date for the enforcement of the provisions will be set by regulations that are yet to be published. It’s not clear whether there will be a further grace period for those companies that have a confirmation statement due shortly after the provisions come into force. This would seem sensible otherwise some companies will be faced with needing to verify the identity of their directors in the short timeframe of 14 days.
PSCs
All existing PSCs will need to have their identity verified. The same will apply to anyone who becomes a PSC following the relevant provisions of the ECCTA coming into force. The main difference between this requirement and that of the director verification is that the transitional provision is short being 14 days following the announcement of an appointed date by the government.
Companies should make their PSCs aware of this upcoming requirement so delays can be avoided in the collection and verification of identification documentation when the sections come into force. The amount of time and process involved in meeting the requirements when reaching out to individuals, some of whom may be international high net worth and extremely busy individuals, should not be underestimated.
The requirement for a company to maintain a separate register of PSCs will be removed and so all information about a company’s PSC will be registered at Companies House.
Relevant Officers of RRLEs
The concept of a relevant officer is newly introduced by the ECCTA. Each RRLE must identify a relevant officer whose identity must be verified, and details registered at Companies House. A relevant officer is broadly a director of a company or the equivalent.
The registration process will be similar to that of individual PSCs. A longer transitional period of 28 days is provided for but given that these individuals must be identified and registered from scratch this could still cause timing issues for some companies.
Companies should consider who the relevant officers of their RRLE entities will be and ensure that the RRLEs are aware of this incoming requirement. By definition, the RRLE will control the company, not the other way around, so companies and their board should be aware that these requests will need to go ‘up the chain’ and in some circumstances demand action from senior individuals.
Delivery of documents to Companies House
As noted above, the identity verification requirements do not only extend to individuals with some managerial or ownership connection to a company. Any individual wishing to file documents at Companies House on behalf of a company is also caught. Therefore, companies will need to carefully consider which of their team members need to be verified to file documents on behalf of the company, , allowing for such contingencies as absences and staff churn. Alternatively, they may wish to rely on an ACSP, such as Elemental.
Registered Email Address
The ECCTA introduces a requirement for all UK companies to maintain a registered appropriate email address. This is an email address to which communications from Companies House could be expected to come to the attention of a person acting on behalf of the company.
Once the provision comes into force, Elemental will be providing an email address as part of its compliance service for this purpose. This will provide certainty to clients without needing to worry about changing the email address or monitoring the mail received.
Registered Office: Appropriate Address
The ECCTA amends the CA to require companies to ensure that its registered office is an “appropriate address”. This is defined as an address where both:
- A document addressed to the company and delivered either by hand or by post would be expected to come to the attention of a person acting on behalf of the company.
- The delivery of documents is capable of being recorded by obtaining acknowledgment of delivery.
Elemental’s digital mail service, meets both requirements and provides a simple and easy-to-use solution to ensure that multiple individuals can access the company’s mail securely.
Offences created by the ECCTA
The ECCTA extends the existing false statement criminal offence in the CA. The effect of the amendments is that it will be an offence for a person to deliver a false, deceptive or misleading filing or statement to the Registrar “without reasonable excuse”. Previously, as long as the person was not knowingly or recklessly delivering false information then no offence would be committed. This brings the CA offence in line with the ROE offence that already exists.
By entrusting an ACSP with the filing of documentation at Companies House, clients can avoid the potential criminal liability that this offence carries.
Accounts and Reports
The ECCTA amends the CA to require many companies to disclose more information about their financial position.
Micro-entities will be required to file both a balance sheet and a profit and loss account whilst small companies will be obliged to file these documents along with a directors’ report. There will no longer be an option to file abridged or filleted accounts.
Companies House: New Objectives and New Powers
Although of less immediate practical impact, the ECCTA expands the role and powers of Companies House. Until now the role of Companies House has been to register information and make it available for public inspection.
The new role of Companies House will be quite different including new objectives to improve the accuracy and integrity of information on the register and sweeping new powers to, amongst other things, reject documents for inconsistencies, require additional information and remove documents from the register.
It has clearly never been more important to ensure that a company’s filing obligations are met in a professional and efficient way to ensure offences are not inadvertently committed and to avoid Companies House raising issues in respect of a company’s public record and filings.
How we can help
Elemental is an integrated professional services firm offering joined-up support across corporate governance, company secretarial, and accounting. It is the market leader for Register of Overseas Entities services and has advised number of leading law firms and corporate service providers on the new regime. For ECCTA we will be acting as an authorised corporate service provider (ACSP) looking to help clients with a fully managed service, to include:
- Director Verification
- PSC Verification
- Relevant Officer Verification
- Email and Address Services
- Preparation and Submission of Accounts
If any of our partner firms or clients would like to discuss how we can help them prepare and comply with the new rules please get in touch with your usual contact or here.
