After a year of discussions, on 26 October 2023, the Economic Crime and Corporate Transparency Bill received Royal Assent and was adopted as the Economic Crime and Corporate Transparency Act 2023 (‘the Act’).
The Act follows on from an earlier economic crime bill, the Economic Crime (Transparency and Enforcement) Act 2022: which was fast-tracked through Parliament in March 2022 in response to the Russian-Ukraine conflict.
The Act in overall aims to improve corporate transparency, tackle the abuse of corporate form structure which facilitates commission of economic crimes and improve clarity over beneficial ownership. Furthermore, the Act introduces a ‘failure to prevent fraud’ offence.
In this blog post, we will focus on the developments introduced by the Act in relation to company administration regime under the Companies Act 2006 (‘CA 2006’).
Powers to Companies House
The Act extends the powers of Companies House by imposing broader and more proactive measures to safeguard the accuracy and integrity of its register. Companies House will no longer be a passive institution, but it will be able to challenge, reject or even remove information filed with it. Additionally, where necessary, it will have the power to ask for additional information in connection with a filing. All these shifts are aimed to ensure the overall accuracy and integrity of its register.
Except for the register of members, companies will no longer be obliged to keep its directors’ register, register of secretaries and PSC register because information on directors, company secretaries and PSC will be kept at Companies House. In relation to the register of members, requirements are expected to be enhanced. Specifically, companies will be required to provide their shareholders’ list to Companies House.
Mandatory ID Verification
The Act introduces a mandatory identity verification for future and current directors, as well as for persons with significant control (‘PSC’). While failure to undergo identity verification will amount to an offense, any director performing their duties without being verified could also be disqualified under the directors’ disqualification regime.
This may require companies to implement an appropriate system to manage the verification process, ensuring that no director remains unverified.
The verification requirement also extends to those who file documents on behalf of a company. Therefore, once guidelines as to ID verification is finalised, company secretaries and/or any individual filing on behalf of the company will need to have their IDs verified to continue filing given that only verified individuals will have the authority to file documents with Companies House.
Registered Office at an Appropriate Address
Entities are required to establish and maintain a registered office at a deemed ‘appropriate’ address, along with maintaining a registered email address. The email address is to be used for the receipt of correspondence from the Registrar so that communications reach an individual representing the company.
New Offense: Failure to Prevent Fraud
The Act introduces a new offence - failure to prevent fraud - which aims to hold corporate entities accountable when they have profited from a fraud committed by their employees. This offence ensures that a large entity can be held liable for fraud if a specified fraud offence is committed by an associated person with the intention of benefitting the entity or any associated person of that entity. The term ‘associated person’ covers employees, agents, subsidiaries of the relevant organisation as well as their employees and a person who otherwise performs services for or on behalf of the entity.
Beneficial Owner and Overseas Entities
Although most of the Act relates to UK registered companies, a notable amendment impacting overseas entities is the expanded definition of beneficial owner. The Act broadens the details which must be disclosed as part of the Register of Overseas Entities.
Currently, under the 2022 Act, only the beneficial owner of the overseas entity which owns a property in the UK must be disclosed. With the amendment, the definition of beneficial owner will also include someone for whom an overseas entity holds the property as a nominee. Therefore, this change will have the effect of disclosing the ultimate beneficial owner of property to the public. Property investors who were previously not on the public register will now be included.
Implementation
Although the Act has received Royal Assent, it is subject to a follow-up legislation. In other words, all these new measures are expected to be implemented upon the adoption of secondary legislation in the future. Granting extensive powers to Companies House mean that it will undergo substantial operational reform. Furthermore, a transitional period of 6-months will apply to certain obligations.
Despite this, along with the Government’s commitment to implement the measures shortly, Companies House has already published an announcement stating that measures not requiring secondary legislation, will come into force in early 2024.
