New accountability rules enacted to improve corporate transparency
Company directors, people with significant control of a company, or anyone who files information at Companies House on behalf of a company, must ensure they comply with new transparency rules coming into force from 4 March 2024.
Greater scrutiny of information lies at the heart of the new legislation, which is designed to address loopholes in regulations and use of public registries that may have been exploited to facilitate economic crime. It strengthens the powers of law enforcement agencies, makes it easier to prosecute corporate entities for certain financial crimes, and introduces a new offence of ‘failure to prevent fraud’ for larger organisations.
Changes include new requirements to provide additional shareholder information, and restrictions on the use of corporate directors.
The new legislation, called the Economic Crime and Corporate Transparency Act 2023 (the Act) succeeds the previously fast-tracked Economic Crime (Transparency and Enforcement) Act 2022, which was drawn up in response to Russia’s invasion of Ukraine and saw the introduction of the Register of Overseas Entities. The Act will be implemented in conjunction with the existing company administration regime under the Companies Act 2006.
It means that from 4 March 2024, UK registered companies will face:
- more rigorous checks on company names
- new rules for use of registered office addresses
- a requirement to provide a registered email address
- a requirement to confirm activities are lawful on incorporation and each year thereafter.
Companies House will have greater powers to challenge information that is provided and will use data matching to identify and remove inaccurate information from the register. It will also share data with other government departments and law enforcement agencies. The Act will therefore provide Companies House with more effective investigation and enforcement powers.
While the Act places additional reporting requirements on companies, the new digital processes will replace some old paper-based requirements. It is understood that companies will no longer be required to maintain the same extent of internal registers of directors and their addresses, secretaries and people with significant control (PSCs). This information will be filed directly with Companies House and maintained on a central public record, though the exact way this will be done is not yet known.
The new Act includes enhanced powers to verify identities of company directors and measures for this are expected to be introduced later in 2024. Anyone setting up, running, owning or controlling a company in the UK will need to verify their identity - this will apply to new directors and to those previously registered as company directors, to PSCs, and relevant officers of a registerable relevant legal entity.
It will be a criminal offence for an individual to act as a director while their identity is unverified, and the company will be committing a criminal offence by allowing an unverified director to act.
The changes affect companies across the board, and directors will need to be alert to these changes, to ensure they are compliant from March 2024 onwards. There is no definitive timetable yet, but we will be monitoring what comes into force.
Limited partnerships will also face stronger filing obligations. They will need to file their information through authorised agents, such as lawyers or accountants, to ensure that information required is trustworthy and fit for purpose. Limited partnerships will also be required to file more information with Companies House to maintain compliance.
The additional measures will require Limited partnerships to:
- provide partners’ names, residential address and date of birth
- verify partners’ identity
- provide a registered office in the UK
- file an annual confirmation statement
- provide an annual confirmation statement
Companies House will furthermore hold new powers to close and restore limited partnerships, apply sanctions, protect partners’ information and operate a statutory compliance process. It is not yet clear when these measures for limited partnerships will come into force, as secondary legislation will need to be drafted before they are implemented.
Further Identification Procedures to promote transparency
The direction of travel continues towards greater transparency, so that law enforcement agencies can more easily identify and act on suspicions over sources of wealth and funding, and to tackle potential tax evasion or fraud.
According to the National Crime Agency, fraud accounts for more than 40% of all crime in England and Wales. The new Act introduces two major changes, intended to expand corporate criminal liability in England and Wales.
It has previously been hard to hold a corporate organisation criminally liable where an individual could not be identified as having the ‘directing mind and will’ at the time of the offence. Now, a ‘senior managers’ test will expand the range of individuals to which liability can be attributed, making it easier for prosecutors to pursue corporate entities for a ‘relevant offence’. These include money laundering offences, fraud, false accounting, tax evasion, bribery, and breaches of sanctions regulations.
Also introduced by the Act is criminal liability attributed to an organisation for a failure to protect against fraud, whether by an employee, agent, subsidiary undertaking, or a person performing services on behalf of the company. This offence of failure to prevent fraud will be limited to so-called ‘larger organisations’, which meet two out of three defining criteria - having more than 250 employees; generating over £36 million turnover; or having assets exceeding £18 million.
Guidance on the necessary procedures for ‘failure to prevent’ is expected soon, and larger organisations will need to review risk assessments and measures for detection and prevention once this has been published.
This guidance is likely to reflect earlier ‘failure to prevent’ offences that were set out in the UK Bribery Act 2010 and the UK Criminal Finances Act 2017, which were designed to tackle bribery and facilitation of tax evasion offences.
We would certainly welcome changes that are made to improve transparency of information held and filed at Companies House. Changes made in recent years to facilitate provision of information have not always resulted in it being easier to reliably identify the status and structure of companies, and hopefully these new measures will result in better information being available to those who have a need to see it.