In late 2023 we saw the introduction of the Economic Crime and Corporate Transparency Act 2023 (the ‘Act’), which aims to improve transparency, security and fairness in the business sphere.
As we move further into 2024 we can expect to see changes to Companies House processes following the implementation of the Act, which gained royal assent on 26 October 2023. The Act succeeds the Economic Crime (Transparency and Enforcement) Act 2022, which was fast-tracked through Parliament to tackle illicit wealth in the UK property market following the war in Ukraine.
When does the Act take effect?
The Act did not take immediate effect on 26 October 2023. The draft regulations that will bring these provisions into force have not yet been published so their precise commencement date is not yet known. However, it is expected that some of the changes will be introduced from March 2024.
What are the changes?
The Act amends the Companies Act 2006, introducing new requirements that companies registered in England & Wales and Northern Ireland must comply with when submitting information to Companies House.
At present, we understand these requirements will include:
1. Greater powers to query information
Companies House will have the ability to challenge and reject incorrect or inconsistent information already filed on the register and, where appropriate, remove it or annotate the register to flag potential issues.
2. New restrictions on company names
There is expected to be enhanced and more robust checks on company names. The Act introduces new restrictions on using company names that contain computer code, are intended to facilitate crime, or suggest a connection with a foreign government.
3. Registered office address changes
Stricter rules on registered office addresses are expected; for example, a company’s use of a PO Box as their registered office address will not be permitted. As of March 2024, companies must always have an ‘appropriate’ office address.
4. Registered email addresses
Companies must supply a registered email address to which Companies House can send communications.
5. Lawful purpose
Companies House will require companies to confirm that they are forming a company for lawful purposes, on incorporation. Companies will also be obliged to confirm annually that all its future activities will be lawful via its annual confirmation statement.
6. Sharing data with other bodies
Companies House will have the ability to share data with other government departments and law enforcement agencies, allowing for better working cohesion between these bodies.
Other Significant Changes to the Act
1. Maintenance of a register of a company’s officers held internally will be abolished
In addition to the changes listed above, the Act will abolish the burdensome duty for companies to maintain their own register of directors and their addresses, register of secretaries and PSC register internally. Companies will instead simply file these details directly with Companies House and these will be maintained on a central public record.
2. Identity Verification
Enhanced identity verification measures will be introduced later in 2024. These will apply to all new and existing company directors, PSCs and relevant officers of a registerable relevant legal entity.
There will be two types of identity verification, these include:
- Direct verification via Companies House; and
- An indirect verification route through an Authorised Corporate Service Provider (ACSP).
There will be a transition period for existing directors and for PSCs to verify their identities.
An individual who has failed to comply with the requirement to verify their identity with Companies House could be subject to criminal proceedings (and a fine); civil penalties issued by Companies House; incorporations/registrations of a new company being rejected; being unable to file statutory filings; and the register being annotated to show the individual’s status as “unverified”. For directors, failing to verify could also result in being prohibited from acting as a director.
The proposed identity verification requirements could potentially create difficulties for companies when filing information with Companies House, particularly in instances where complex corporate structures exist. Companies with corporate directors will be afforded 12 months to comply; within that time, they must either ensure their corporate director is compliant or resign them.
- Expanded Identification Doctrine and New Failure to Prevent Fraud Offence
The Act also introduces two important changes to corporate criminal liability:
- expansion of the identification doctrine to cover “senior managers” (for economic crimes); and
- a new offence of failure to prevent fraud which applies only to “large organisations.”
The so-called “identification” principle (by which a company may be criminally liable for certain economic crime offences committed by their senior managers) came into force on 26 December 2023.
What next?
Whilst further guidance is expected, many of the outlined changes are welcome, and it appears that Companies House is looking to proactively address existing issues in the current system. The introduction of the Act has enabled Companies House to alter its systems so fraudulent activity can be more easily identified.
Transparency appears to be at the centre of the changes; notably the introduction of the requirement to have a company email address and the abolition of the ability for a company to use a PO Box as its registered office address. Further guidance is awaited on what will be considered an ‘appropriate’ registered address and whether a company’s email address must be maintained/monitored.
If you have any questions about the issues raised in this article, please contact our Banking & Finance team.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.
How can we help you?
Call us on the Belfast number below or send us a message and one of our team will be in touch.
028 9024 3141Send us a Message