Economic Crime and Corporate Transparency Act 2023 – Identity Verification

As highlighted in our previous blog on the Economic Crime and Corporate Transparency Act 2023 (ECCT), identity verification (IDV) is a key step in the implementation and effectiveness of the ECCT.

IDV under the ECCT aims to ensure that Companies House only contains legitimate details of Applicable Persons (see below). All new and existing directors and persons who have significant control over a company (among others) must have their identity verified. Previously, we knew that IDV would be carried out directly by Companies House and by authorised corporate service providers (ACSP); however, until a  few weeks ago, we did not know how the IDV would be carried out.

On 22 May the Government released draft regulations (Registrar (Identity Verification and Authorised Corporate Service Providers) Regulations 2024 (IDV Regulations), which provide draft procedures for IDV and the information needed to carry out IDV (Registrar’s Rules (IDV Rules)).

Whilst the IDV Regulations are currently only in draft, preparation will be essential to ensure a smooth transition period and accidental defaulting Applicable Persons (or corresponding corporate entity). The following will provide a brief overview on the information and evidence required for IDV.

Who will need to have their identity verified?

IDV is required from:

• all new and existing directors of UK companies;
• all new and existing members of UK limited liability partnerships (LLPs) (if the LLP member is a corporate entity, all of the directors (or equivalents) of that corporate entity must verify their identity);
• all new and existing persons in the UK and overseas, who are PSCs of UK companies and LLPs;
• a relevant officer (a director) for all new and existing entities in the UK and overseas, who are RLEs of UK Companies and LLPs; and
• anyone who delivers documents to Companies House on their own behalf, or on behalf of another, including an ACSP,

(Applicable Persons).

Once the IDV regime is in force, any person, before they can be appointed a director of a UK company, must have their identity verified and must obtain from Companies House a unique identifier which confirms that IDV has been successfully completed. Unless a disqualifying event occurs, IDV is only required once for each Applicable Person.

New PSCs have 14 days after the formation of a company, or after the PSC has notified Companies House that they have become a PSC, to confirm to Companies House that their identity has been verified. RLEs have 28 days to provide Companies House with the name of a verified relevant officer of the RLE.

For existing directors, PSCs and RLEs, Companies House intend to implement a transitional period within which they must verify their identity. After each Applicable Person has been verified Companies House will issue a unique identified which is likely to consist of a sequence of letters and numbers. Each Applicable Person will only have one unique identifier that can be used for all of their existing or prospective appointments.   

Failure to comply with the IDV regime and continuing to act as a director will be an offence, punishable by a fine, by the corporate entity and each officer in default. An unverified director will not necessarily invalidate their ostensible authority to bind the company vis-à-vis third parties. However, as a result of these changes, it would be prudent for third parties (and their lawyers) to check that a signatory is not only a director, but that they have also been verified.

How will IDV work in practice?

IDV will be possible in two ways:

• Direct verification with Companies House – Under the IDV Regulations, a person applying for IDV must provide:
  • a valid email address (being an email address at which, emails sent by Companies House would be expected to come to the attention of that person);
  • their residential address; and
  • supporting documentary evidence as set out in the IDV Rules (inc. ID).

Individuals can complete IDV using the following routes:

• using the Gov.UK ID Check application;
• using the Government’s One Login web journey; and
• at the Post Office.

Companies House will then compare biometric or photographic evidence against the individual. Where supporting documentary evidence does not support biometric comparison (e.g. if their passport does not have a biometric chip) there is an exceptions route whereby ID documentation can be checked by a Companies House approved third party. Companies House can request further information and require an applicant to take other reasonable steps before it approves the application and issues a unique identifier. Also, Companies House are not bound by a specific time frame to approve the application.

• Verification by an ACSP – An ACSP must follow a similar process as is required if IDV occurs via Companies House directly. The difference here is that the ACSP takes responsibility for verifying the individual’s identity and not Companies House.

If an ACSP is satisfied that it has verified an individual’s identity, the ACSP may deliver to Companies House a verification statement. The verification statement must:

• state the name of the individual to which the verification statement relates;
• state the date on which the ACSP was satisfied that the required personal information was true;
• include a statement that the ACSP has delivered or will be delivering at the same time as the verification statement, the following information:
  • the individual’s date of birth;
  • the required contact information of the individual;
  • a description of the information and evidence which formed the basis on which the ACSP approved the individual’s application; and
  • the ACSP’s unique identifier.

Once Companies House has received all of this information, Companies House must provide the individual with their unique identifier.

Timeline for implementation of the IDV regime.

An implementation timeline is still unclear. The IDV Regulations are currently only in a draft form. In addition to assisting with the revision of the IDV Regulations, Companies House is already under strain due to other changes from the ECCT currently being implemented. Given that Companies House will need to develop/implement the actual infrastructure to carry out IDV (and with delays in parliament caused by the general election) the timeline for implementation may extend into 2025.

Preparation

Whilst the timeline is uncertain, corporate entities should still prepare for IDV, particularly those entities that have angel investors/directors who are not easily contactable. This will prevent the possibility of fines being incurred when the IDV regime is implemented and ensure that directors can continue to bind companies without any suggestion of them acting in an ultra vires manner and prevent a poor record of corporate governance.

As further information is published and revision of the IDV Regulations and IDV Rules are produced we will updated our guidance.

If you would like to know more, please contact a member of the Corporate team.  To see all of the services we can offer businesses, visit the Corporate section of our website.

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