The Economic Crime and Corporate Transparency Act (the Act) received Royal Assent in October 2023. The Act will significantly reform the way UK companies are incorporated, tackle misuse of limited partnerships and redefine the role of Companies House from that of a registry to a proactive regulator.
The legislation introduces a new offence of failure to prevent fraud (see our separate briefing here) and other measures to tackle economic crime but in this briefing we highlight the imminent reforms relating to UK company creation and the new role of Companies House. For further information on the wider reforms, see our separate briefing here.
Reasons for the reforms
The legislation's three stated objectives are to: prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy; strengthen the UK’s broader response to economic crime; and support enterprise by enabling Companies House to deliver a better service and improving the reliability of its data to inform business transactions and lending decisions across the economy.
The Government's February 2022 White Paper describes how the use of anonymous or fraudulent "shell" companies and partnerships provides criminals with a "veneer of legitimacy" to commit a range of crimes, from corruption and money laundering to identity theft. The aim is that various corporate transparency measures, including verifying the identities of those that own and control companies, will help to make it harder for criminals to use and abuse UK businesses.
New powers for the Registrar
Historically, Companies House's role has been one of record keeper rather than regulator. The White Paper confirmed that Companies House would no longer be a "passive administrator of company information", but a "much more active gatekeeper over company creation and [a] custodian of more reliable information on the register." The Act will introduce new objectives for the Registrar to promote and maintain the integrity of the register and to minimise the extent to which companies facilitate the carrying out of unlawful activities.
Some of the measures that the Act introduces, such as identity verification, will not be introduced straight away, as they will require both secondary legislation and system development at Companies House. Whilst secondary legislation is still awaited, Companies House has confirmed that other changes will come into force from as early as 4 March 2024. These changes are covered in more detail below.
Registered office address
Companies will be required to have an "appropriate address" for their registered office at all times. An appropriate address will be one where documents delivered to it can be recorded and should be brought to the attention of a person acting on behalf of the company. It will no longer be possible to use a PO box as a company's registered office. Failure to comply with the new requirement, without reasonable excuse, will be an offence committed by the company and every officer punishable with a fine. Continued non-compliance could lead to the company being struck off the register. The requirement to have an "appropriate" registered office address will come into effect as soon as the relevant provisions of the Act come into force. The exact timing of this is not yet known.
Registered email address
Companies will also be required to maintain an "appropriate" registered email address at all times. This will be for use by the Registrar and will not be publicly available. An appropriate email address will be one where an email sent to it should, in the ordinary course, come to the attention of a person acting on behalf of the company. Again, failure to comply with this new requirement, without reasonable excuse, will be an offence committed by the company and every officer punishable with a fine. Companies will have until the filing of their next confirmation statement after the relevant provisions of the Act come into force to notify the Registrar of their registered email address.
Company names
Although there are already certain restrictions on the use of company names, the Government considers that they are not sufficient to prevent abuse. Currently, the Secretary of State can only direct a company to change its name where it is too similar to an existing name, where misleading information has been given for the purposes of registering a name, or where the name gives an obviously misleading indication of the nature of its activities.
The Act will permit the Registrar to refuse to incorporate a company where, in the Secretary of State’s view, the name could be used to facilitate certain crimes or where the name suggests a non-existent connection with a foreign government or an international institution. To protect other users of the register, the Registrar will also have the power to reject names which comprise or contain a computer code. The Secretary of State will have new powers to direct companies to change their names if they fall into these categories and the Registrar will be able to replace a company's name with its company number on the register if it fails to act.
Scrutinising the register
The Registrar will have greater powers to query, reject, clarify and remove information from the register. More specifically, it will have the power to reject information where it is inconsistent with other information available to it and that inconsistency causes the Registrar to doubt its accuracy. It will also have the power to require a person to provide additional information to determine compliance with a requirement to deliver information to the Registrar and compliance as to its contents. The Registrar will continue to have the power to require inconsistencies on the register to be resolved but the information it may take into account in assessing any inconsistencies will be broader. The Registrar's ability to remove information from the register will no longer be purely administrative but will be extended to allow removal of incorrect information. Where information has been removed from the register, the Registrar may further annotate the register to address any confusion that may arise as a result.
The Act will also introduce a positive obligation on the Registrar, albeit to the extent the Registrar considers appropriate, to analyse the information in its possession for the purposes of crime prevention or detection.
Data sharing
Among the new powers to be given to the Registrar is the ability to share data with any persons for purposes connected with the Registrar's functions or with other public authorities for purposes connected with their functions.
Lawful purpose
When the relevant provisions of the Act come into force, companies will be required to confirm on incorporation that they are being formed for a lawful purpose and in each confirmation statement that their future activities will be lawful.
Next steps
We do not yet know the exact timing of the reforms discussed in this briefing because secondary legislation is awaited. However, Companies House has announced that these changes are expected to come into force on 4 March 2024 and no earlier. The changes coming into effect from 4 March 2024 are arguably those that Companies House can implement most easily. Changes, such as identity verification, that require both secondary legislation and system development at Companies House, will not be introduced until later. Companies House has confirmed that its fees will rise this year to fund the new powers and wider package of reforms that will be brought in by the Act. Exactly when the wider reforms will come into force is not yet known.