Following several consultations, the Government has published a White Paper detailing its final plans to introduce extensive reform of Companies House and to increase the transparency of UK corporates.
The proposals, which are intended to clamp down on economic crime and help safeguard national security, have been accelerated in response to the conflict in Ukraine. They sit alongside measures proposed by the Government in the Economic Crime (Transparency and Enforcement) Act 2022 (which received Royal Assent on 15 March 2022.)
The Government has confirmed that the White Paper reforms will be introduced through a second Economic Crime Bill, though the timetable for that legislation is still uncertain.
Some of the key changes are set out below.
Identity verification and measures relating to directors, beneficial owners and agents
Digital identity verification
One of the most significant reforms relates to the introduction of compulsory identity verification procedures for each of the following:
- new and existing company directors (and their equivalents, including general partners in limited partnerships and designated members in limited liability partnerships)
- persons with significant control (PSCs) and
- individuals who file information on behalf of a company.
The new digital method for identity verification will link a person with an authorised identity document (for example, a passport) and in most cases, this process should only take about 15 minutes to complete.Once verified, users will have one account that will be able to access all Companies House services, without having to reverify each time. It is intended that all entities registered at Companies House will have at least one fully verified natural person directly associated with them on the public register.
Under the new system, Companies House will not register someone as a director without them having a verified account. A director whose appointment has not been registered by the end of a set period will be committing an offence and may also be liable for a civil penalty. Similarly, a company that has an unverified director will also commit an offence.
The process for PSCs is different from directors as PSCs can be registered at Companies House without prior verification. If the PSC does not then verify their identity within a set period after registration, Companies House will flag the PSC as “not verified”. Continued failure to verify, even after flagging, will amount to a criminal offence and may be liable to a civil penalty.
There will be a transition period for existing companies to comply with the new verification requirements. Failure to comply by the end of that period may result in criminal sanctions and civil penalties.
Despite originally proposing that corporate directors be banned, the Government has confirmed that they can continue to be appointed, but additional restrictions will be imposed on their use. A company will only be allowed to be appointed as a director of a UK company if:
- it is registered in the UK (overseas entities will not be permitted);
- all of that company’s directors are natural persons and
- those natural person directors are, before the corporate director is appointed, subject to identity verification.
The restrictions on corporate directors will not apply to corporate members of LLPs or corporate general partners of limited partnerships. Instead, these entities will have to provide Companies House with details of their director(s) or a managing officer and those individuals will need to have their identity verified.
Improving transparency of company ownership
To improve the usefulness of information held at Companies House on shareholders and PSCs, companies will be required to record full names for their shareholders in their registers. Private companies and traded companies where shareholders hold at least 5% of the issued shares of any class of the company, will also be required to provide a one-off full shareholder list. The list will be updated annually with any changes when the company files its confirmation statement (as is currently the case.)
Companies House will also collect and display:
- more information from companies claiming an exemption from the requirement to provide details of its PSCs; and
- the Relevant Legal Entity (RLE) conditions that have been satisfied to be recorded as a PSC, and if the RLE is listed on a regulated market, the name of that market.
The role and powers of the Registrar
The Registrar’s existing role is to register company information and to make it available for public inspection. The Government’s proposals include the introduction of a new statutory function for the Registrar in promoting and maintaining the integrity of the register. The function will be supported by new and stronger powers, including the following:
Discretionary power to query information
The Registrar will be given new discretionary powers to reject and query new filings, as well as to query information already on the register. The new powers may be applied where information is identified as potentially fraudulent, suspicious or might otherwise impact upon the integrity of the register. It will mean that the Registrar is no longer obliged to accept documents for registration where there is reason to query the information provided. The Government is considering the range of sanctions that might apply if a company fails to respond to a query from the Registrar.
Registrar’s administrative removal powers
The Registrar will be given a new discretionary power to remove material from the register if it impacts on the integrity of the register. For example, the Registrar will be able to remove information following the use of the new querying power. However, removal of material that has legal consequence once filed, should, in the majority of cases, remain a matter for the courts.
Power to change unauthorised registered office addresses.
The Registrar will be given discretionary power to change the address of a company’s registered office to the default address (a PO Box at Companies House), without application, where the Registrar is satisfied that the company is not authorised to use the address or there is evidence that the address does not exist.
The Registrar will be able to use the new querying power to investigate company names. Examples of when this power might be used include where the name is part of a targeted campaign or belongs to another organisation and is being used without permission, or where there is intelligence of fraud or other criminal activity.
If the Registrar queries a registered name and receives an unsatisfactory response, it will have the power to direct the company to change its name within 28 days. If the company fails to comply, the Registrar will be able to change the name to the company’s registered number (or an alternative.)
Protecting personal information
New processes will be introduced to make it easier for individuals who are at risk of harm to protect their names, or in the most serious cases, to prevent all “required particulars” from being displayed on the public register. Applicants may also be able to have their signatures suppressed from the public register and directors will no longer be required to provide a business occupation when registering. Applications to suppress a “sensitive address” (such as a women’s refuge) will also be permitted.
Improving financial information on the register
The Government’s proposals to improve the quality and value of financial information at Companies House include the following:
- enhanced validation checks: In addition to the new query power (see above), the Registrar will be able to carry out enhanced validation checks on financial information to ensure that it is coherent, complete for a company of that size and type, and is consistent with accounts submitted to other agencies.
- digital filing: company accounts will be required to be filed in a digital format using Extensible Business Reporting Language (iXBRL) and be fully tagged. The tagging will make the information easier to interrogate, compare and check.
- reduced filing options: the filing options available to small and micro companies will be reduced to just two – micro-entities and small companies. The option to file abridged and ‘filleted’ accounts will be removed. As a result, all small companies will be required to file a full balance sheet and profit and loss, but micro-entities will be able to opt out of filing a directors’ report.
The Government will continue to explore options to enable companies to file their financial information once a year and in one place (a ‘file once’ approach) instead of filing information with different government departments at different times.
Data sharing and discrepancy reporting
The Registrar will be given new powers to pass on information to law enforcement and other public and regulatory bodies (when specified conditions are met) and also to cross-reference data with data held by public and private bodies.
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 require regulated professionals (such as financial institutions) to report any discrepancies they identify between information they hold on company beneficial owners and information held by Companies House about PSCs. These requirements will be extended to cover anomalies in director information and registered office addresses.
The accuracy and transparency of information filed at Companies House has been much criticised over the years and the Government’s reforms are to be welcomed if they are successful in rectifying that situation.
Once implemented, the reforms will amount to the biggest change to the role and purpose of the Registrar of Companies since it was created in 1844. They will also have significant implications for the users of Companies House and for the way that companies are administered in the UK.
Some of the reforms, such as identity verification for directors and PSCs and the conditions around the appointment of corporate directors, are likely to have an immediate impact. However, we will have to wait and see whether others, such as the Registrar’s new power to query information, will have the desired result of transforming Companies House from a passive administrator of information into an active gatekeeper and custodian of reliable data.
This article was authored by Debbie Shaw.