UK expands corporate transparency rules: how can businesses and directors navigate the wave of new regulations – with more on the horizon?
6 November 2023 | Applicable law: England and Wales | 4 minutes
The British Government has introduced a set of new regulations aimed at increasing the transparency of companies operating in the UK market and enhancing the disclosure requirements of the individuals owning and directing them. The new regulations bring with them expanded powers for Companies House, the UK's public registrar of companies, and in several respects fundamentally changes the role of Companies House from a passive collector of information to a fact-checker and final word on company filings.
While the regulations are expected to strengthen global confidence in legitimate businesses in the UK market, the benefits will not be without accompanying administrative burden.
Here is what businesses with UK operations, and their directors and beneficial owners, need to know:
Though aimed at combatting economic crime, even legitimate businesses need to get on board with the new corporate transparency regulations
In our article from September last year, we addressed the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE Act) which came into force in March 2022 and requires that overseas entities owning UK property or land register their beneficial owners or managing officers on the newly established Register of Overseas Entities.
As a second part of the package, the Economic Crime and Corporate Transparency (ECCT) Act 2023 achieved Royal Assent on 26 October and became law. Though many provisions of the ECCT Act are not yet in effect (as the Act is subject to a phased implementation and transition periods), the ECCT Act will over time implement measures intended to prevent abuse of UK corporate structures, including through the enhancement of investigative and enforcement powers of Companies House and law enforcement agencies, as well as the creation of an identity verification process that individuals owning or directing UK companies (or their Authorised Corporate Service Providers (ACSPs)) will have to engage in.
Verification of individuals who serve as directors or qualify as persons with significant control
The reforms that the ECCT Act brings include the launch of an identity verification process for certain individuals listed or interacting with Companies House, namely all new and existing registered directors of English companies, Persons with Significant Control (PSCs), and those who file on behalf of companies. The verification process is intended to ensure that anyone falling into one or more of these categories is in fact who they claim to be.
What this will mean in practice remains to be developed by procedures Companies House is set to publish over the coming weeks and months and by secondary legislation which has yet to be developed. In general terms, the process is expected to require the digital submission of photographic and other evidence of the relevant individual to Companies House (the details of which will not normally be available for public inspection). The individual will then be assigned a unique identifier number to be referenced in all future filings. As an alternative to direct verification via Companies House, individuals may opt for an indirect verification route through an authorised corporate service provider (ACSP), such as a law firm or our company secretarial team, who are themselves able to declare to Companies House that the necessary identification checks have been carried out. From the companies' perspective, verification via ACSPs will generally be a much more efficient process given ACSPs are already required to collect suitably certified identification documents as part of their usual working practices and regulation by supervisory bodies, such as the Solicitors Regulation Authority.
Notably, directors who have not been verified, yet take action on behalf of companies in their capacity as directors, will be committing an offence. Repeated non-compliance of the verification requirements could also lead to director disqualification among other consequences.
The launch of the verification process will be part of the longer-term implementation of the ECCT Act, given the financial and technological undertakings it is understood to require. Other aspects of the Act, however, are expected to take effect in early 2024, now that the ECCT Act has received Royal Assent.
Power to reject filings and change a company's name and address
Within several months from now, Companies House will receive expansive new powers and functions aimed at ensuring the accuracy of the information it receives. For example, where submissions contain information inconsistent with that already received, Companies House will be empowered to reject the filing or may require additional information, and for inconsistencies to be resolved, before the new filing is accepted.
Companies House will also be granted the power to determine a new name for a company following a company's failure to change its name despite prompts to do so and, where the Registrar has become satisfied that a company is not authorised to use an address listed as its registered office address, Companies House will have the power to change it. The Act has also introduced new rules for registered office addresses, meaning that all companies must have an "appropriate address" at all times (for example, not a P.O. Box) and a registered email address.
Extended powers of involuntary strike off
Under the current Companies Act 2006, Companies House has the power to strike off a company from the register, without needing that company's consent, where there is reasonable cause to believe the company is not carrying on business or in operation.
By way of the expanded powers of the ECCT Act, which will insert new legislation into the Companies Act, an additional involuntary strike off power will be granted, enabling Companies House to proceed on a strike off where there is reasonable cause to believe that any information contained in, or statement connected to, the company's application for registration or restoration is false.
The impact of the ECCT Act on limited partnerships and LLPs
Legislation on limited partnerships and limited liability partnerships (LLPs) will also be affected by the ECCT Act. For instance, LPs will be required to maintain a connection to the UK, and Companies House will have the power to deregister LPs in specific instances. Like companies, the members and PSCs of LLPs will have to comply with the new registration requirements, and the changes introduced through the Act will apply to information that LLPs submit to the register as well.
Increased incorporation and annual fees chargeable to UK companies are expected
So how is Companies House going to fund the implementation and operation of its expanded objectives and powers? Incorporation and annual fees payable by UK companies are expected to increase for these purposes from early 2024. To what degree fees are expected to rise is not yet clear, but a recent June 2023 policy paper assures that the increased fees will be subject to Parliamentary scrutiny and approval and, when set, the Government intends to 'consider the burden that higher fees will place on businesses and the need to keep the UK competitive in the global business environment'.
Where to go from here?
Participation by companies and their directors and PSCs in the new scheme is inevitable and it is easy to see how an innocent oversight or failure to clearly integrate the new processes among a company's key personnel could lead to administrative delays in a company's operations.
To put themselves in the best position, companies should stay vigilant of the implementation of the new measures, some of which are expected to come into force in early 2024, take advantage of the transitional periods and campaign materials anticipated to accompany the Act's phased implementation and, where needed, seek the advice and support of professionals like us, who are keeping a close eye on the Act's developments and advising our clients on the way forward.