Economic Crime and Corporate Transparency Act 2023
Economic Crime and Corporate Transparency Act 2023: The Highlights
As part of the UK Government’s clamp down on corporate fraud, the Economic Crime and Corporate Transparency Act 2023 (the Act) was given Royal Assent on 26 October 2023. The Act will bring in a number of changes aimed at tackling the abuse of corporate structures in the UK by increasing transparency of corporate entities.
One of the most significant reforms is the sweeping changes in relation to the powers of Companies House and its requirements to improve the integrity of the information that it holds. Its role will be expanded from currently being a passive recipient of information to a much more active gatekeeper to company creation and holder of more reliable data. A new corporate offence of failing to prevent fraud will also be introduced under the Act.
Whilst the exact timing of when the Act will come into force is to be confirmed, Companies House expects the first changes to come into force in early 2024.
Anticipated initial key changes
Some of the first measures expected to be introduced relate to company information. They include:
every company must provide an “appropriate” email address to Companies House which will be used by Companies House for communications. This email address must be one where communications would be reasonably expected to come to the attention of a person acting on behalf of the company and will be kept off the public register; and
a company’s registered address must be an “appropriate” address, which means that if documents are sent to that address, they would come to the attention of a person acting on behalf of the company. Companies will not be allowed to use a PO Box address as their registered office address.
Failure to provide an “appropriate” email address or registered address will constitute an offence for which the company and its directors may be fined.
Each company must confirm that they carry out a “lawful purpose” in their business activities and this confirmation will be asked for on incorporation applications and annual confirmation statements.
Companies House will have new powers to query any filings, request any further documents and/or reject any filings and to remove any information from the register. It can also require that all filings are made electronically. A criminal offence will be committed if their requests are not complied with. Fines may also be imposed.
Other key changes in the Act
The requirement for companies to keep certain company registers (a register of directors, register of directors’ residential addresses, a register of secretaries or Persons with Significant Control (PSC) register) will be removed, but any changes to this information will still be required to be filed with Companies House. Companies House will have new enforcement powers in respect of the failure to file documents within the prescribed timescale.
Formal identification requirements for directors (new and existing), PSCs and anyone filing on behalf of a company will be introduced at a future date; these are aimed at making it hard to file documents anonymously or hide interests in a UK corporate structure. Identity can be verified by one of the two following methods:
directly with Companies House; or
via an Authorised Corporate Service Provider (ACSP), being an intermediary registered with a regulatory body for anti-money laundering purposes, such as accountancy or law firms who have registered with Companies House for this purpose.
Due to the systems and processes that Companies House will need to implement and the secondary legislation that will need to be put in place, the verification process is likely to take some time to implement. However, once it is, we are expecting that the first annual confirmation statement will require directors to have their identity verified.
Once in force, the company, a director or PSC will commit an offence if they continue to act without having had their identity verified, but the actions of a director will not be affected.
The Act simplifies the financial filing requirements for small and micro-entity companies.
Small companies are only required to file a balance sheet, a profit and loss account and a directors’ report. They will no longer need to file abridged accounts.
Micro-entities are only required to file a balance sheet and a profit and loss account.
To help increase corporate transparency, the Act requires all nominee shareholders to disclose who the beneficial owner of their share(s) are.
Whilst the Act does not specifically cover limited liability partnerships, the Government has confirmed that legislation will be passed to adapt company law so that it governs limited liability partnerships as well.
New offence: failure to prevent fraud
The new offence applies to companies that are “large organisations” (being ones that exceed any two of the following: (i) 250 employees (ii) £36m annual turnover (iii) £18m in total assets) if one of its “associates” commits a specified fraud offence with the intention of benefitting the organisation or any of its customers. The definition of “associate” is broad and includes employees, agents and subsidiaries. Specified frauds include fraudulent trading, false statements by directors and false accounting.
The maximum penalty if found guilty is an unlimited fine but a company will have a defence if it can demonstrate that it had reasonable fraud prevention procedures in place or that it was not reasonable to expect such procedures to have been put in place. Statutory guidance is expected in due course on what will constitute “reasonable procedures”. On the current timeline, it is not anticipated that this new offence will come into force before 2025.
Next Steps
Companies do have a grace period to enable them to prepare before these new significant requirements will need to be met.
During that period, preparatory steps should be taken. These can include ensuring Companies House filings are all up to date and accurate, checking all those individuals that file documents at Companies House are able to use the web-filing service and that they are aware of, and ready for, the identity verification requirement as well as considering which email address is to be provided to Companies House or whether a new one will need to be set up.
