With the Government keen to improve transparency over corporate entities, Companies House will be switching from a passive repository to an active gatekeeper of compliance. It will do so through the new Economic Crime and Corporate Transparency Bill which is currently going through Parliament. This legislation follows on from the Economic Crime (Transparency and Enforcement) Act which was introduced in 2022 and gave wider powers to the Government to tackle economic crime. This Bill will further strengthen the Government’s anti-money laundering agenda.
Topics to be answered in this article
What does the bill cover?
The Bill proposes to make the changes in four key areas.
Companies House reforms
The Bill will introduce identity verification for all company directors and Persons with Significant Control (PSC), new checking powers on information already on or submitted to the register, improve the quality of the financial information on the register, provide more effective investigation and enforcement powers as well as facilitating data sharing across other bodies, and reforms to crack down on the misuse of corporate entities.
Limited partnership reforms
The Bill will tackle any misuse of limited partnerships by tightening registration and transparency requirements, adding a requirement for limited partnerships to have a UK connection, and allowing Companies House to deregister limited partnerships where appropriate.
Recovery and seizure of cryptoassets
It will provide additional powers to law enforcement for the recovery and seizure of cryptoassets which are proceeds of, or associated with, crime. It will do so by amending the criminal confiscation powers in the Proceeds of Crime Act 2002.
Stronger anti-money laundering powers
The Bill will facilitate disclosure of information by corporate entities in order to prevent, investigate or detect economic crime which would otherwise have been in contravention to data protection legislation. The Registrar will also be able to impose a civil financial penalty if an offence under the Companies Act 2006 is committed.
Why is the government legislating?
Research in 2022 showed red flags for more than 10% of limited liability partnerships as potential vehicles for money laundering fraud and other types of financial crime. The Government has committed to cracking down on fraud and money laundering and this Bill aims to do just that.
What does the bill aim to achieve?
At the moment, Companies House holds a passive role in the collection of data on corporate entities. The Bill would give Companies House greater control to ensure the accuracy of the data, monitor these entities and report them to the relevant authorities where necessary. There is likely to be a transition period to allow existing companies to meet the new verification requirements. The hope is that the Bill will also act as an effective deterrent against the abuse of UK corporate entities for economic crime.
What does the bill mean for businesses?
All new and existing directors and PSC will be required to verify their identity once the Bill comes into force. Any inconsistent information provided to Companies House will be challenged which could create extra work for the company to correct. There will also be greater scrutiny given to registered office addresses provided for UK companies, which must be an “appropriate” address. It is unclear what this means yet, however, we know that any notification to Companies House regarding a change of address will need to include a statement confirming that the address is an appropriate address.
The Bill will introduce simplified rules in respect of financial filing requirements which will likely make things easier for micro and small companies. It also suggests general fee increases in relation to incorporation and annual filing in line with inflation.
The knock-on effect of this means increased administration and compliance for businesses to adhere to, otherwise they may face sanctions such as penalties or investigation.
When will the bill become law?
The Bill is currently being read at the House of Lords and is expected to reach Royal Assent in spring or summer 2023 after which the legislation will come into force.