Spring Cleaning: the new transparency rules shaking up Companies House

Company directors, people with significant control of a company, or anyone who files on behalf of a company, must ensure they comply with new transparency requirements from March 2024.

Greater scrutiny of information lies at the heart of the new legislation, which is designed to plug potential loopholes that may have been exploited for the purposes of economic crime. The new rules will see not only a strengthening of powers of Companies House, but also a strengthening of the powers of law enforcement agencies, making it easier to prosecute corporations for certain financial crimes, and introducing a new offence of ‘failure to prevent fraud’ for larger organisations.

Changes include new requirements to provide additional shareholder information, and restrictions on the use of corporate directors.

Called the Economic Crime and Corporate Transparency Act 2023, the Act amends the Companies Act 2006 and succeeds the previously fast-tracked Economic Crime (Transparency and Enforcement) Act 2022 which was drawn up in response to Russia’s invasion of Ukraine and saw the introduction of the Register of Overseas Entities.

The Act, having received Royal Assent in October 2023, will roll out some of its earliest measures from March 2024, and will see UK registered companies facing:

• stronger checks on company names;
• new rules for registered office addresses and a requirement to provide a registered email address; and
• a requirement to confirm business activities are lawful on incorporation and a similar declaration each year after that within the annual Confirmation Statement.

It will take some time for additional measures to come into force given the need for development of the appropriate infrastructure. Companies House will utilise greater powers to challenge information through data matching by identifying and removing inaccurate information from the register. Companies House will also share data with other government departments and law enforcement agencies, who themselves will have greater powers to seize, freeze and recover crypto assets.

While the Act places additional reporting requirements on companies, directors will be pleased to hear that the new digital processes will do away with some old paper-based requirements. Companies will no longer be required to maintain internal registers of directors and their addresses, secretaries and people with significant control (PSCs). Instead, this information will be filed directly with Companies House and maintained on a central public record.

Also included in the measures to be introduced later in 2024 are enhanced powers to verify the identities of anyone setting up, running, owning or controlling a company in the UK extending to new and existing company directors, to PSC’s, and relevant officers of a registerable relevant legal entity. It will be a criminal offence for an individual to act as a director while their identity is unverified, and the company will be committing a criminal offence by allowing an unverified director to act.

Corporate Partner, Harriet Jones comments:

The changes affect all companies, and directors will need to keep an eye out to be sure they are complying from March 2024 onwards. We don’t have a definitive timetable for all of the new measures yet, so we will all be keeping our eyes peeled for the implementation dates.

The tide continues towards greater transparency, so that law enforcement agencies can more easily identify and act on suspicions over sources of wealth and funding, and to tackle potential tax evasion or fraud. With a recent increase in the number of people notifying Companies House of companies that have been incorporated fraudulently using names and home addresses of people who know nothing about the new company, the increased checks will be seen as long overdue.

According to the Government, fraud accounts for more than 40% of all crime in England and Wales and the new Act introduces two major changes.

It has previously been difficult to hold a corporate organisation criminally liable where an individual could not be identified as having the ‘directing mind and will’ at the time of the offence. Now, a ‘senior manager’ test will expand the range of individuals to which liability can be attributed, making it easier for prosecutors to pursue corporates for a ‘relevant offence’. These include money laundering offences, fraud, false accounting, tax evasion, bribery, and breaches of sanctions regulations.

Also introduced by the Act is criminal liability attributed to an organisation for a failure to protect against fraud, whether by an employee, agent, subsidiary undertaking, or a person performing services on behalf of the company. This offence of failure to prevent fraud will be limited to so-called larger organisations, which meet two out of three defining criteria: being more than 250 employees; over £36 million turnover; or assets exceeding £18 million.

Guidance on the necessary procedures for ‘failure to prevent’ is expected soon, and larger organisations will need to review risk assessments and their detection and prevention measures once this has been published.

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