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Government proposes increased company filing requirements and identity checks for those setting up and running companies

Posted on 17 May 2019

Government proposes increased company filing requirements and identity checks for those setting up and running companies

As part of its ongoing strategy of increasing corporate transparency and accountability, the UK government is consulting on a wide range of measures which, if implemented, would involve significantly reforming the information that companies are required to disclose, increasing the checks on that information and requiring the identities of those setting up, managing and controlling companies to be verified.

Identity verification

The government proposes to introduce identity verification requirements into company registration and filing processes, and thinks that these requirements should apply as far as possible to all individual directors, "People with Significant Control" (PSCs) and presenters (i.e. people connected with the company who file information about it on the register).

If, on incorporation, any prospective directors are unable to verify their identity then Companies House would not incorporate the company. The appointment of a new director would be conditional on the director being able to verify their identity. The responsibility for verifying the identity of a PSC would rest with the PSC themselves rather than the directors, as would any sanctions for non-compliance, which could include criminal offences.

Shareholder information

Currently a company must keep its own register of members up to date and update Companies House with any changes annually. For private companies, Companies House only receives each shareholder's name and number of shares held by each shareholder, and not the shareholder's address.

The government proposes that a company will be required to collect information on each shareholder's name, residential address and date of birth and enter it into its register of members, before submitting it to Companies House. The information would need to be filed as a part of an incorporation application and where there is a change in shareholder details. 

Beneficial owner information

The consultation also addresses the ability of searchers of the register to obtain information about who owns and controls companies in connection with which there is an exemption from the PSC requirements. Companies with voting shares admitted to trading on a regulated market in the UK or EEA or on specified markets in Switzerland, the USA, Japan and Israel are exempt from the requirement to maintain a PSC register and PSC information with Companies House. It is proposed that Companies House should make available information to help searchers find out more easily who owns and controls these companies. This could include, for example, a ticker symbol or stock symbol which uniquely identifies publicly traded shares of a particular stock on a particular stock market.

Powers of Companies House to verify and remove information

The government believes that there is a case to give Companies House more statutory discretion to query and check information, before that information is placed on the register. Companies House would also have the power to ask for further evidence where appropriate. One of the examples given of where this might happen is where a company files information that represents a significant change from its previous status, such as a significant increase in share capital. The consultation does not specify what kind of information Companies House might be entitled to ask for in this scenario. 

Compliance: requirements for regulated entities

The consultation sets out a number of proposals in relation to compliance and enforcement. Among these are a proposal to require regulated entities, which include banks, accountancy firms, law firms and company formation agents, to report anomalies or discrepancies they have identified on the register: so-called "feedback loops". Unlike the proposed measures to implement 5MLD (see below), the duty to report would apply to anomalies or discrepancies identified anywhere in the register. The government believes that regulated entities are in a good position to alert Companies House given that they will often be using Companies House data as a starting point for the due diligence checks they conduct on clients.

Limit on directorships

The government is considering a cap on the number of directorships that an individual may hold concurrently. The consultation notes that there may be circumstances in which such a cap should not apply and seeks views on this. One example given is where third party agents are setting up companies in their own name, in order to create companies swiftly for their clients.

Protection of personal information

Not all of the information held by Companies House is made public on the register. As noted above, the consultation proposes to extend the amount of information that companies and individuals associated with them are required to file, but almost none of the newly required information would be placed on the public register.

The government considers that there should be two tiers of access to non-public information: the limited rights enjoyed by credit reference agencies and the broader access enjoyed by specified public authorities.

5MLD and Brexit implications

The Fifth Anti-Money Laundering Directive (5MLD) was adopted on 30 May 2018 and is required to be implemented by 10 January 2020. Since 5MLD's transposition deadline falls within the "implementation period" agreed between the UK government and the European Commission in March 2018 (which will take effect only if approved by the UK Parliament), the government intends to transpose 5MLD: see our separate April 2019 update on implementation of 5MLD.

The proposals in the government's May 2019 consultation overlap with and complement the government's proposals with respect to 5MLD but in some respects they go beyond what is required. The consultation document notes, for example, that its "feedback loops" proposal would be "in line with the direction of travel in the EU but will go further." 5MLD will require regulated entities to report discrepancies between the information on companies obtained under their CDD obligations and the information shown on the register – but this will be limited to beneficial ownership information. The proposals in the May 2019 consultation would subject regulated entities to much wider ranging duties to report discrepancies to Companies House.

Next steps

The consultation closes on 5 August. The proposals, if implemented, will require primary legislation, as well as significant changes to Companies House's systems and processes. As the government notes in the consultation document, "[t]he proposals […] would amount to the most significant reform to the UK's company registration framework since a register was first introduced in 1844."

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