The Economic Crime and Corporate Transparency Act 2023: Are you and your business compliant?
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The Economic Crime and Corporate Transparency Act 2023 (ECCTA) will introduce unprecedented requirements on companies, their owners and directors to verify themselves to and ensure the accuracy of the information they provide to Companies House.
Whilst the implementation of these reforms will be gradual, due to secondary legislation and the development of Companies House systems being required, several changes are expected to take place this year.
The purpose of the ECCTA is to give Companies House a more significant role in disrupting economic crime, supporting economic growth and increasing the reliability of the information held at the register.
Upcoming changes in 2024
It will take some time for us to see the full implementation of the ECCTA, but the government aims to introduce the first set of changes by 4 of March this year, including but not limited to:
- Greater powers for Companies House to query information and request supporting evidence
- Stronger checks by Companies House on company names
- New rules for registered office addresses
- A requirement for all companies to supply a registered email address to Companies House
- A requirement for all companies to confirm to Companies House they’re forming the company for a lawful purpose when they incorporate, and to confirm to Companies House that their intended future activities will be lawful on their confirmation statement
- Giving Companies House the power to annotate the register when information appears confusing or misleading
- Giving Companies House the ability to clean up the register, using data matching to identify and remove inaccurate information
- Allowing Companies House to share data with other government departments and law enforcement agencies.
It is apparent from these upcoming changes that the government’s initial strategy is to enhance the powers of Companies House, with other measures under the ECCTA, such as identity verification, to be introduced later.
Prior to the ECCTA, Companies House was required to accept information if it was ‘properly delivered’ and had limited powers to correct or query information where there was a suspicion that something submitted was erroneous or fraudulent.
The new powers of Companies House to reject and query new filings, as well as to query information already on the register, marks a landmark shift in the role Companies House will play in regulating the register and the wider business environment.
Besides expanding the authority of Companies House, the (projected) 4 March changes include two initial requirements that companies will need to be mindful of; namely, the requirements to supply a registered email address, and for new companies to confirm their intended future activities and that they are being established for a lawful purpose.
Secondary legislation and Companies House guidance will hopefully provide greater clarity on what the proposed measures will entail and the time frame in which companies will need to comply.
Future changes
Whilst the initial measures will reimagine the role of Companies House, the ECCTA envisages further expansion to its powers and oversight which will be introduced over time.
Future changes will include giving Companies House the authority to compel a company, owner or director to provide information so that they can make a decision about a queried filing. If they fail to respond to a query, or to provide sufficient evidence in its response, the Registrar may take action, including imposing sanctions.
Further down the line, we can expect to see the introduction of the enhanced verification requirements contemplated in the ECCTA. These requirements will be obligatory for both new and existing:
- Directors and owners of UK-incorporated companies and foreign companies registered with Companies House
- Members and partners of LLPs and limited partnerships
- Individuals submitting filings to the Registrar
- Persons with significant control (PSCs) and relevant legal entities (RLEs).
There will be a transition period within which existing companies, directors and their equivalents, and PSCs/RLEs must verify their identity.
This transition period will provide a limited time to comply with the new requirements, and we await the enactment of secondary legislation and Companies House guidance to provide the details.
Failure to comply within this transition period may result in criminal sanctions, civil penalties, and the status of the company/director/PSC or RLE being marked as ‘unverified’ at Companies House, potentially causing reputational damage.
Additionally, an individual who was under a requirement to verify their identity with Companies House, and failed to comply with it, could be prohibited from incorporating new companies and making statutory filings. An individual must not, and the company must ensure that they do not, act as a director unless their identity has been verified.
After the verification system has come into force, the next confirmation statement that the company files must contain ‘relevant membership information’ which, for a non-traded company, is a full list of the members at the confirmation date, and the number of shares of each class held by each such person.
Whilst this may simply be a repetition of information that is already on the register, companies which do not file the confirmation statement, as well as members and shareholders who fail to inform the company of their details (or that their details have changed), may be subject to criminal sanctions imposed by Companies House.
Members and shareholders will therefore need to ensure that notice of their details, or any changes, are provided promptly to their company to ensure they do not inadvertently commit a criminal offence for what, in many cases, could be an administrative oversight.
How will the verification take place?
Once Companies House has introduced the necessary systems, verification will be conducted digitally directly with Companies House or via an authorised corporate service provider (such as a legal advisor) by linking the individual being verified with an identity document, such as a passport or driver’s licence, and then utilising scan and likeness matching technology, and government databases to make a match. Alternative methods will be available for individuals unable to verify their identity through the digital verification system.
The anticipated identity verification requirements for those filing documents at Companies House pose some tricky issues for companies to consider.
Under the amendments to the Companies Act 2006, only a director, officer or employee will be able to file on behalf of the company. Many corporate groups have holding companies or subsidiaries that may be dormant with no employees or company secretaries. Whilst they should always have at least one director who would be responsible for filing documents at Companies House, concerns have been raised that the new requirements are overly burdensome and do not adequately consider intragroup dynamics.
It is hoped that secondary legislation will provide some clarity on how corporate groups can most efficiently ensure compliance with the filing requirements for their subsidiaries.
Abolition of company registers
Another major development in the ECCTA is that it will abolish the need for a company to maintain its own registers of directors and their residential addresses, secretaries and persons with significant control.
Instead, the company will be under an obligation to provide these details to Companies House and keep them up to date. In this way, the government is trying to ensure that all relevant information about a company will be in the public domain.
How Hunters can help
As we progress towards full implementation of the ECCTA, directors and owners of UK companies are encouraged not only to engage in internal discussions, but also to consult with their advisors to prepare themselves and develop readiness strategies to comply with the new company verification regulations.
Our experienced Corporate and Commercial team at Hunters will be able to advise you and your business on how best to prepare for the new requirements imposed by the ECCTA so that you can ensure your compliance. We invite you to reach out to our Corporate and Commercial team today.
