Understanding the Economic Crime and Corporate Transparency Act
The Economic Crime and Corporate Transparency Act (ECCTA) 2023 has received its Royal Assent. It aims to enhance transparency and enforcement measures building upon the Economic Crime (Transparency and Enforcement) Act 2022. This legislation introduces significant changes for UK companies, affecting various aspects of corporate compliance and information disclosure.
What are the key aims of the ECCTA 2023?
- Enhanced Registrar Powers: The Bill broadens the Registrar of Companies House’s powers, allowing for more rigorous scrutiny over company creation and new powers to check, remove or decline information submitted to, or already on, the companies register.
- Improved Financial Information: Improving the financial information on the register, ensuring greater transparency to enable better business decisions
- Investigation and Enforcement Powers: Companies House will have increased powers to investigate and enforce regulations. The Bill also introduces better cross-checking of data with other public and private sector bodies where Companies House has evidence of anomalous filings or suspicious behaviour..
- Protection of Personal Information: Enhanced measures will be in place to protect personal information provided to Companies House. This is aimed to reduce fraud and other harms.
Keep reading below to understand what the provisions of the EETA 2023 mean for your company.
What changes are in store for companies?
New record keeping requirements
Companies will now need to record individual members’ forenames, surnames, and service addresses in the register of members. Traded and non-traded companies must submit a one-off confirmation statement with specific membership information to Companies House. Criminal sanctions apply to members failing to inform the company of their details or changes within two months.
The Act eliminates the requirement for companies to maintain certain registers, with all relevant information now held on the public register at Companies House. Concerns have been raised about the practicality of these changes, particularly the increased record-keeping burden on companies.
Identity verification requirement for all new and existing company directors, PSCs and relevant officers of a registrable relevant legal entity
Identity verification is a mandatory process for directors, persons with significant control (PSCs), and members of limited liability partnerships (LLPs). The legislation mandates identity verification for both new and existing company directors, PSCs, and relevant officers of a registrable relevant legal entity (RLE).
For directors of newly formed companies, the identity verification must occur before submitting the application for company formation. Subsequently, newly appointed directors must verify their identity promptly, prior to notifying the Registrar of Companies about their appointment. Acting as a director is prohibited until identity verification is complete. Non-compliance with these requirements, either by the company or the director, constitutes a criminal offense. PSCs and relevant officers of a registrable RLE must also undergo identity verification within a specified timeframe or face criminal sanctions.
Companies House is expected to implement a phased approach for director identity verification, allowing existing companies a transition period for compliance. Failure to comply within the transition period may result in criminal sanctions or civil penalties, and the company’s register will be marked as unverified.
Two methods of identity verification are anticipated: direct verification through Companies House and indirect verification through an Authorized Corporate Service Provider (ACSP). Corporate service providers must be registered with an anti-money laundering (AML) supervisory body to obtain ACSP status.
While the government aims to curb fictitious director registrations, concerns have been raised about the perceived burden of the new requirements. The hope is that secondary legislation will provide practical implementation and allow a risk-based approach to identity verification.
Nominee shareholders
The Act empowers the Secretary of State to regulate nominee shareholders, allowing companies to identify PSCs in cases involving nominee-held shares.
Use of corporate directors
Legislation limiting the use of corporate directors will be enforced, and new powers will enable Companies House to reject, query, or compel information submission for potentially fraudulent or suspicious filings.
Only corporate entities with “legal personality” can be corporate directors under the Act. In addition, corporate directors must be natural persons whose identities have been verified before their appointment.
Submission of documents to Companies House
The Act introduces restrictions on who can submit documents at Companies House on behalf of companies. Individuals must have verified their identity, and documents must be accompanied by a statement confirming their verified status. ACSPs or their officers/employees can also submit documents on behalf of individuals.
Concluding comments
Additional changes are anticipated for the Register of Overseas Entities and rules governing annual confirmation statements, company names, and financial reporting requirements. Detailed guidance and secondary legislation are expected to provide further clarity on these changes, with most provisions taking effect at least a year from now.
Companies and administrators should proactively identify people subject to identity verification, review filing practices, maintain updated company records, and assess the presence of corporate directors within group structures in preparation for these forthcoming legislative changes.
If you require legal advice concerning company and commercial law, please call our office today on 02476 231000 or email enquiries@askewslegal.coPlease note that this article is for information purposes only and does not constitute legal advice.
