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Increased transparency for UK corporate entities, including identity checks for directors and "people with significant control"

Posted on 24 September 2020

The Government has published its response to its consultation on measures to enhance the role of Companies House and increase the transparency of companies and other legal entities.

The headline measure to be introduced is the introduction of compulsory identity verification for all directors and "People with Significant Control" (PSCs) of UK registered companies. There are, however, a number of measures that the Government has confirmed will be implemented, including reform of the power of the Registrar of Companies to query and remove information on the register and new duties on regulated firms to report discrepancies between the public register of companies and the information they hold on their customers.

Identity verification

In a move to a "fundamentally new approach to the way Companies House handles the identities of people who use its services and appear on its register", Companies House will introduce a digital identity verification service. All company directors and PSCs will need to have a verified account at Companies House, which will be able to be set up directly or through a third party agent. In the case of directors, their appointment will not have legal effect or be shown on the register until the account has been set up.

Where an application to incorporate a company is made through an agent, that agent will need to have an account. Identity checks will not be duplicated by Companies House where the agent has already carried out checks, but Companies House will require evidence of identity checks for all directors and PSCs in order for their account to be created.

Powers of the Registrar of Companies to verify and remove information

The Registrar of Companies will be given increased powers to query information that is submitted to Companies House, rather than having to accept information that is validly submitted. The Registrar's powers to remove information from the register, to better ensure its accuracy, will also be broadened.

Regulated firms to be required to report discrepancies to Companies House

Since January 2020, as a result of the implementation of the Fifth Money Laundering Directive, regulated firms have been required to report discrepancies between the beneficial ownership information at Companies House and the information they hold on their customers. The Government intends to extend this obligation to require obliged entities to report to the Registrar anomalies in other information on the register; the Registrar may then make information available to law enforcement partners when certain conditions are met.

Company accounts

The rules on shortening accounting reference periods will be changed to reduce the potential for abuse, with the Government intending to allow companies to shorten their accounting reference period (ARP) only once in five years. The Government is considering reforms to company accounts that go further than initially envisaged and will consult further on the proposals. These include practical measures to help determine the size of a company and to categorise accounts correctly.

Other measures

Other proposals being taken forward include measures to protect better the personal data of individuals on the register. For example, individuals will be able to apply to suppress their occupation currently on the public register and the Government will introduce a process whereby officers can suppress the "day" element of their date of birth for information first filed prior to October 2015. It will also explore ways to prevent the fraudulent use of certificates of good standing, including considering changing the name of these certificates. The consultation had initially raised the idea of collecting more detailed information on shareholders at Companies House, but the Government has decided an insufficiently strong case was made for that. Companies House will, however, make it easier for users to view a full list of company shareholders to enhance the transparency of current shareholder information.

Benefits of reform?

The Government has identified wide economic benefits from access to more reliance information on UK companies. As well as the benefits to the UK's fight against crime, the transparency reforms are intended to give business, investors and society the "confidence that comes from access the quality information they need to make the best choices and complete transactions." The Government also believes that the reforms will help businesses when they need finance: they will receive better and faster decisions when seeking credit, both from finance institutions or as trade credit.

Increased burden on businesses?

Some concern had been expressed by legal and business representative bodies that the reform proposed would affect the speed of incorporation and attractiveness of the UK as a place to do business. The Government's response states, however, that it expects the impact on overall speed of incorporation and other filings to be negligible and it expects the vast majority of companies to be able to incorporate easily within 24 hours.

Next steps

The press release accompanying the consultation response confirms that legislation to enact the reforms to the register will be brought forward "when Parliamentary time allows." Some of the measures will require further consultation before they can be implemented.

The reforms come alongside a number of other upcoming transparency measures, including the introduction of a new UBO register for overseas entities owning UK property: see our September 2019 briefing on the Registration of Overseas Entities Bill.

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