The UK Economic Crime and Corporate Transparency Act 2023 (ECCTA), which will begin to come into force over the course of 2024, aims to prevent economic crime and abuse of UK corporate structures by improving the integrity of the information available on companies and other business entities, expanding law enforcement powers in relation to intelligence gathering, and cracking down on crime connected to activities such as money laundering and fraud.

Succeeding the Economic Crime (Transparency and Enforcement) Act 2022, which was fast-tracked through Parliament to tackle illicit wealth in the UK property market, the ECCTA received Royal Assent on October 26, 2023, following consultations in 2019 and 2020 and a white paper published by the UK government in 2022. While the ECCTA will introduce a host of changes, we will focus on the extensive reforms to the UK Companies Registries based in Scotland and Wales.

Companies House changes and identity verification

Identity verification

Identity verification will now be required for all new and existing registered company directors and people with significant control (PSC) by either a direct digital method or an indirect method in which an Authorised Corporate Service Provider (ACSP) can file on behalf of those concerned. Companies House intends to make alternative methods available for directors who are unable to use the digital method of verification.

When appointing a new director, a statement will be required to confirm that the proposed director has verified their identity and that they are not disqualified under the directors’ disqualification legislation or ineligible to be a director.

For a person appointed as a director to a newly incorporated company, their identity will need to be verified before the application is delivered to the Registrar of Companies. If the company is already incorporated the director will have 14 days from the date of the change to verify their identity. Once an individual PSC is registered, they will also have 14 days to verify their identity.

Corporate PSCs will have 28 days and will be required to provide the name of their verified relevant officer, for example, a person within the corporation who has had their identity verified. Company secretaries will not need to verify their identity.

ACSPs are expected to be organisations which are able to provide the same level of assurance when verifying identity as verification through the direct route, such as accountants, legal advisers or company formation agents. An ACSP will need to be authorised to provide this service and declare that they have completed all of the necessary identity verification checks on their clients before any director or PSC filings can be made. ACSPs are also required to retain all records relating to the identity verification checks and make such records available if requested by the Registrar.

Under the ECCTA, if a director continues to undertake their role in the company without verifying their identity, an offence will have been committed by each director in breach of this rule. The company and its officers are tasked with ensuring that each director’s identity has been identified, and will therefore have also contravened these rules. It is important to note that the actions of the director are not invalidated but an offence will have been committed.

The Registrar

The ECCTA empowers the Registrar to become a more active gatekeeper in company creation and a custodian of more reliable data. This reform is underlined by four main objectives:

• Ensuring that documents are delivered “properly” to the Registrar as required.
• Ensuring that information contained in the register is accurate and the register contains all the mandatory information.
• Ensuring that the records kept provide an accurate impression to the public and are not misleading.
• Preventing companies and others from carrying out or facilitating unlawful activities.

These objectives are mobilised by giving the Registrar more powers to scrutinise the information provided, reject information that seems inconsistent or inaccurate and share data with other government departments and law enforcement agencies.

Filings

The legislation abolishes the requirement for companies to maintain the following registers on the basis that Companies House will have verified and reliable data:

• a register of directors;
• a register of directors’ residential addresses;
• a register of secretaries;
• the PSC register.

Companies will still be required to maintain a register of members.

Company names

The ECCTA further expands the circumstances in which the use of a company name can be prohibited to include any names that could be used to facilitate crime. In practice, this means that the Registrar will be able to reject any names, amongst other things, where the Secretary of State believes it provides a “non-existent” connection with a foreign government or international institution or where names contain computer code.

‘Appropriate’ registered office and email address

Among the changes within the ECCTA, the registered office for a company is now required to be an “appropriate” address. An address is deemed “appropriate” where it can be delivered to a company by hand or post and come to the attention of an individual acting on behalf of such company, and delivery is capable of being recorded. This means that PO boxes will no longer be considered “appropriate” addresses.

It will also be required that companies keep an “appropriate” email address with Companies House at which, if information is sent, such information would come to the attention of an individual acting on behalf of the company. Companies House have noted that this email address will be kept separately and not be available to the public.

As a practical measure, companies should establish both an address where they can receive post and an email address that can be monitored and used to receive information.

Accounts

The accounts provided on the register have been targeted by the ECCTA in an attempt to improve the information and ensure that it is more reliable and accurate whilst reflecting the latest advancements in digital technology.

Once implemented, all accounts will need to be digitally submitted to Companies House and tagged using standard labels for the reporting of financial data (iXBRL). Small companies will also be required to file audited annual accounts unless they benefit from an audit exemption. If a small company does benefit from an exemption, it will need to state this on the balance sheet with an explanation for the exemption.

Small companies will no longer be able to file abridged or filleted accounts.

Fees

As the Registrar’s powers have been greatly increased under the ECCTA, they will also need to increase fees to factor in all of these changes and their increased role. According to the Registrar, the cost of funding investigative, intelligence and enforcement work that would help tackle economic crime and money laundering will be factored into incorporation and annual fees, which will be paid by all entities.

The Registrar has reported that the fees will be set by regulations, and as such will be subject to Parliamentary scrutiny and approval, but has also noted that maintaining UK competitiveness will be weighed against the burden that higher fees place on businesses.

Changes to be introduced from March 2024

It was noted that the changes brought about by this act would be implemented over the next year or so through a series of commencement orders. A timetable has yet to be provided, but the Companies House Registrar has confirmed that the initial changes reflected in the ECCTA will be introduced from March 2024 (though the precise commencement date remains unknown).

The Registrar will have greater powers to query, scrutinize and reject information that appears to be incorrect or inconsistent with information that is already on the register. In taking steps to clean up the register, Companies House will begin using data matching to identify and remove inaccurate information, and the register will be annotated to let users know about any potential issues with the information which has been supplied.

Included in the Registrar’s powers will be the ability to check company names, as we outlined earlier.

Additionally, each company at incorporation will now be required to confirm that they are forming the company for a lawful purpose. Every year following incorporation, the company’s confirmation statement will need a statement that its future activities will be lawful.

The Registrar will also now have the power to share data with other government departments and law enforcement agencies if it is believed that a company may be carrying out or facilitating unlawful activity.