Economic Crime and Corporate Transparency Act 2023

In recent years the development of online filings and lack of controls at Companies House has simplified the process of incorporating new companies in England. As a result the number of incorporations has increased from 533,000 to 801,000 in 10 years. This simplification has arguably led to a hub for (inter)national economic crime.

Currently, for £12 and a few newco details you can create a limited company. The existing incorporation process does not verify any of these details, which enables sham shell companies to be incorporated with fabricated shareholder/director details, exposing the UK economy to fraud and economic crime. Recognising this and the increasing need to reduce and deter such behaviour, certain steps have been taken to increase the transparency of companies. In 2016 the beneficial ownership (PSC/RLE) regime was implemented and in 2022 the register of overseas entitles was introduced. The most recent preventative measure is the Economic Crime and Corporate Transparency Act 2023 (ECCT). As well as implementing changes at Companies House the Act also covers amendments to crypto assets, anti-money laundering powers and reforms to limited partnerships.

The new legislative amendments to Companies House have three objectives:

1. To prevent organised crime, fraudsters and terrorists from using UK corporate entities to abuse the UK economy.
2. To increase the strength of the UK’s response to economic crime.
3. To improve the service provided by Companies House in relation to the reliability, transparency and availability of data stored on the register to inform individuals, businesses and lenders on their decision making.

The ECCT aims to achieve these objectives by the following reforms:

1. Identity verification: All directors and PSCs of new and existing companies and those delivering documents on behalf of companies to the Registrar will need to have their details verified. This can be done directly on a new Companies House portal, or via an “authorised corporate service provider”.
2. Enhanced subjectivity: The powers of Companies House will be actively increased by the introduction of new powers to check, remove and decline information submitted to, or already contained on, a company’s register.
3. Investigatory powers: Companies House will now have the power to share information with law enforcement bodies where evidence of suspicious behaviour or anomalous filings have been made.
4. Information privacy: Personal information that is displayed at Companies House will be protected to prevent fraud and other identity crimes.

Although Royal Assent to the ECCT was obtained in 2023, the timeline for implementation is subject to secondary legislation. The implementation of the changes is set to commence on 4 March 2024 and will provide new powers to the registrar to remove erroneous and misleading material from a company’s register and to annotate a company’s register with information that the registrar considers appropriate to remedy any misleading or confusing material.

Companies House has also said that we can expect to see the following measures being implemented in early 2024:

1. Greater powers to query information. Companies House will be able to scrutinise and reject information that seems incorrect or inconsistent with information already on the register. In some cases, they will be able to remove information.
2. Stronger checks on company names.
3. New rules for registered office addresses which will mean all companies must have an appropriate address at all times. Companies will not be able to use a PO Box as their registered office address.
4. A requirement for all companies to supply a registered email address.
5. A requirement for all companies to confirm they’re forming the company for a lawful purpose when they incorporate. Every year, the company will need to confirm that its future activities will be lawful on their confirmation statement.
6. Annotations on the register to let users know about potential issues with the information that’s been supplied to Companies House.
7. Taking steps to clean up the register, using data matching to identify and remove inaccurate information.
8. Sharing data with other government departments and law enforcement agencies.

Companies House regards the ECCT as the biggest shakeup to the service in its 180 year history. It is hoped that the greater powers will increase the transparency of trade and commerce and reduce the risks of fraud and economic crime from UK corporate entities. The new regime imposes a number of additional requirements on companies, which if not implemented in a cohesive and coherent manner, may lead to fines.

Our Corporate team is on hand to provide guidance.