Following Royal Assent of the Economic Crime and Corporate Transparency Act 2023 (ECCTA) in October 2023, Companies House is due to introduce new, mandatory identification verification measures for directors, beneficial owners, and individuals who submit filings to Companies House. The aims of these new measures are to reduce economic crime and increase corporate transparency.
The ECCTA emerged after a lengthy consultation process that began in 2019, incorporating the views and feedback from businesses, professionals, law enforcement agencies and civil society groups. The Corporate Transparency and Register Reform White Paper of February 2022, presented to Parliament in September 2022, listed a range of flaws in the UK’s highly flexible, low cost and straightforward system for creating and maintaining companies.
Currently, Companies House allows individuals to register companies on a ‘good faith’ basis without verifying their identity, thus permitting individuals to file anonymously and hide company ownership through nominees or complex corporate structures. Recent years have seen a rise in fraudulent shell companies and partnerships at Companies House that provide criminals with a suitable mask of legitimacy to help commit a range of crimes from money laundering to identity theft.
The changes being implemented under ECCTA are designed to improve the accuracy and trustworthiness of the information held by Companies House and deter fraudulent activities. This is welcome news for individuals and businesses fearful of becoming prey to such activities, but it will add to the process of setting up a new entity.
Summary of changes
Individuals will be required to undergo identity checks before they can register companies or make updates to company details. The verification system will likely involve cross-checks with government databases or the use of a trusted third-party service to confirm identities. The expectation is that these checks will be very similar to the ‘Know your client’ procedures that individuals undergo when opening a bank account, instructing a solicitor or accountant or listing a property with an estate agent.
If an individual fails to verify their identity, they will not be allowed to act in the capacity of a director or person with significant control (PSC) and Companies House will not process relevant filings. Non-compliance could also lead to fines or other penalties for the company or individuals.
Indicative timetable
Specific timelines for the implementation of the identification measures under ECCTA have yet to be confirmed, however, the Government anticipates the first step will be to allow trust and company service providers, such as solicitors and accountants, to register at Companies House as ‘Authorised Corporate Service Providers’, so they are able to carry out verification services for their clients and this is anticipated to be completed by Spring 2025.
By Autumn 2025, existing company directors, beneficial owners and those who make filings will need to complete identity verification checks, while newly registered individuals will be subject to such verification immediately upon registration. There will be a transition period of 12 months for existing directors and PSCs (around 7 million individuals) to comply with the new measures, by reference to the due date of their own confirmation statement filing date.
(Information source: https://www.gov.uk/government/publications/economic-crime-and-corporate-transparency-act-outline-transition-plan-for-companies-house/)
Methods of verification
Digital Verification
This will likely involve using a government-approved digital service where individuals can submit documents and verify themselves online using ID.
Authorised Agents
Companies can use Authorised Corporate Service Providers (such as solicitors or accountants) who are registered with Companies House to verify their identity on behalf of directors or officers. These agents must still meet certain requirements to ensure compliance, so using an Authorised Corporate Service Provider will not negate the need to provide and verify ID.
Non-Digital Option
Although digital verification will be the standard, a non-digital option may be offered for those unavailable to use the online method (e.g. through postal services).
Conclusion
Although identification verification is considered to be a key and imminent change to the powers conferred upon Companies House, under ECCTA there are around 50 statutory instruments that will be implemented over the next few years and expected to complete in 2027. Examples of some of these changes include striking off companies where the registrar has concluded they have been formed on a false basis; removing limited partnerships from the register via a court order; issuing financial penalties under ECCTA; requiring all companies to file profit and loss accounts and removing the option for small companies and micro businesses to file abridged accounts. The latter may prove to be the most worrying of all for small to medium-sized businesses (SMEs) who have little competitive advantage to gain by revealing their turnover and profit margins to larger competitors. The impact of such measures on SMEs remains to be seen.
How can TWM help you?
Our expert Commercial Law team, within our Business Law department, is well placed to advise on and assist with all manner of Companies House filings. The key is to engage with us early so that we can deal with our own compliance and ID verification obligations and advise on the most efficient resolution for each client. To find out more about how these changes may impact your business and how we can assist you, please contact a member of the Commercial Law team.
