On 26 October 2023, the Economic Crime and Corporate Transparency Bill received Royal Assent, becoming the Economic Crime and Corporate Transparency Act 2023 (ECCTA). The ECCTA introduces wide-ranging reforms intended to tackle economic crime and improve the transparency of corporate entities. These include a fundamental overhaul of the role and powers of the registrar of companies, and modernisation of Companies House. There will be a new identity verification regime for new and existing directors, LLP members and people with significant control, and a number of other changes intended to enhance corporate transparency and to reduce compliance burdens. The ECCTA builds on the Economic Crime (Transparency and Enforcement) Act 2022, which created the new register of overseas entities holding certain interests in UK real estate.
The ECCTA also significantly widens the scope of corporate criminal liability. It creates a new corporate "failure to prevent fraud" offence which will apply to larger companies and partnerships (see Failure to prevent fraud and corporate criminal liability reform - a new world).
This blog post gives a general overview of the ECCTA. In the coming months we will explore specific aspects of the reforms and look at what companies can do now to prepare.
The Government has published a number of factsheets on the ECCTA which can be read at https://www.gov.uk/government/publications/economic-crime-and-corporate-transparency-bill-2022-factsheets
Commencement and timing
Most of the provisions in the new Act will be brought into force by commencement regulations. However, the corporate criminal liability identification provisions (explained in Failure to prevent fraud and corporate criminal liability reform - a new world) will come into effect two months after the ECCTA became law.
Some of the measures in the ECCTA, such as identity verification, will require changes to Companies House systems, and secondary legislation, before they can be brought into force, and this will take a number of months. However, in a blog post the Registrar of Companies has highlighted some "early measures" expected to take effect in early 2024. These include:
- greater powers for Companies House to check, query or reject information as well as removing information already on the register in some cases;
- stronger checks on company names;
- new rules for registered office addresses and a requirement for all companies to supply a registered email address;
- changes to the registration requirements for new companies to include a statement by subscribers that the company is being formed for a lawful purpose. The annual confirmation statement will also require companies to confirm that their future activities will be lawful;
- annotations on the register to alert users to potential issues with information supplied to Companies House;
- data-sharing powers allowing Companies House to share information with other government departments and law enforcement agencies.
Companies House reforms
Identity verification – individuals who register companies or make filings at Companies House will be required to verify their identity. This will apply to existing directors, people with significant control (PSCs) and those delivering documents to Companies House. Companies already on the register will have a transition period during which to verify these identities. Identity verification requirements will also apply to all new directors and PSCs. Similar reforms will apply in respect of limited liability partnerships.
There will be two routes to identity verification: direct verification via Companies House, and indirectly via an authorised corporate service provider (ACSP). Corporate service providers – typically, company formation agents, accountants or even lawyers - will need to be authorised by Companies House in order to be able to provide identity verification services to clients – i.e. to be ACSPs. A precondition is that they must be registered with a UK supervisory body for anti-money laundering purposes.
Directors and PSCs who do not verify their identity will commit a criminal offence and/or incur a civil penalty. It will also be an offence for a company to have an unverified director.
New powers for the Registrar of Companies – the Registrar will be enabled to reject and query new filings, as well as to query information already on the register, where information is identified as potentially fraudulent, suspicious, or might otherwise impact on the integrity of the register or wider business environment. The new power will allow the Registrar to compel a person to provide information so that the Registrar can make a determination about the queried filing. The Registrar will also be able to require all information to be filed electronically.
Sharing of information – the Registrar will have new powers to proactively share data with law enforcement, regulatory bodies and other public authorities either to assist in carrying out the Registrar's own functions, or to assist a public authority with the exercise of its functions. A new power is also provided to allow others to share information with the Registrar.
Company names – the Registrar will have additional powers to challenge company names. These will be available in cases where the name could be used to facilitate certain crimes; suggests a false connection with a foreign government or international organisation; or contains computer code.
Registered office and email addresses for companies – a company's registered office will be required to be at an appropriate address – i.e. one where, in the ordinary course, a document addressed to the company and delivered by hand or by post would be expected to come to the attention of a person acting on behalf of the company. Companies will also for the first time be required to register an email address.
Ban on corporate directors
We anticipate that the ban on corporate directors (which is already included in the Companies Act 2006) will be brought into force by one of the commencement orders under the ECCTA, which will also provide for a "principles-based" exception. More detail can be found in the fact sheet on identity verification and ACSPs here.
The ECCTA contains provisions introducing a number of reforms for new and existing UK limited partnerships. These are intended to tighten the registration requirements and increase transparency. The changes are intended to limit the risk of limited partnerships being used for illegal activities.