A new Era for Corporate Governance in the UK

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) marks a significant milestone in the UK’s efforts to combat economic crime and enhance corporate transparency. The aim of the Act is to reform the role of Companies House, transforming it into an active regulator with enhanced powers and responsibilities.

The Act

The ECCTA introduces several changes to improve corporate governance and reduce economic crime risks. Here are the main provisions:

1. Enhanced Powers for Companies House: Companies House will actively query, challenge, and remove incorrect information from the register. This change positions Companies House as a gatekeeper for corporate integrity.
2. Mandatory Identity Verification: The Act requires all directors and persons with significant control (PSCs) to verify their identities. Those who fail to comply will face criminal charges or civil penalties.
3. Ban on Corporate Directors: The Act prohibits corporate directors, ensuring that all directorships are held by identifiable individuals.
4. New Filing Requirements: The Act mandates electronic filing for corporate entities. This streamlines processes and limits who can submit filings, reducing the risk of fraud.
5. Registered Office and Email Address Compliance: Companies must maintain a verified registered office address and an appropriate email address.
6. Abolition of Company Registers: Companies no longer need to keep their own registers of directors and PSCs. Instead, Companies House will serve as the single source of this information.
7. Stricter Company Name Regulations: The Act expands the criteria for prohibiting company names that may facilitate crime.
8. New Criminal Offence: Companies and partnerships can face prosecution for failing to prevent fraud committed by employees or agents.
9. Enhanced Registration for Limited Partnerships: The Act introduces new transparency measures for limited partnerships to prevent their misuse.

Unveiling the Transition Plan

On October 16, 2023, Companies House hosted an event centred on the transformation of Companies House under ECCTA. This event served as a platform to unveil the strategy for transitioning Companies House into an active regulator, aiming to combat economic crime and enhance corporate transparency across the UK.

The event featured Justin Madders MP, Parliamentary Undersecretary of State for Business and Trade, who discussed the prevalence of economic crime and corruption in the UK. Madders emphasized how the ECCTA aims to reduce money laundering activity through stricter oversight of registered companies.

The vision presented at the event was that Companies House will become the most innovative and trusted register in the world by 2030. This ambitious goal encompasses four strategic pillars:

• World-Class Services: Establishing systems that enhance data quality and corporate transparency.
• Effective Technology: Adopting advanced technology to create a secure and responsive operational environment.
• Authoritative Data: Ensuring that data is accessible and reliable, fostering economic growth while preventing economic crime.
• Proactive Crime Prevention: Implementing measures to detect, disrupt, and prevent economic crime before it can take root.

During the event, attendees also received a detailed briefing on how the EECTA will reshape corporate governance and strengthen company registrations. The transition plan, which outlines the phased implementation of the Act, was unveiled, with key points including:

• New Powers for Companies House: The event explained how Companies House will enforce its authority to verify and remove incorrect filings, ensuring the register’s accuracy.
• Enhancing Transparency: The discussion highlighted the need for companies to maintain appropriate registered office addresses and the rigorous checks that will be in place for company names.
• Failure to Prevent Fraud: The Act introduces a new criminal offence for companies that fail to prevent fraud, reinforcing corporate responsibility.
• Identity Verification: Mandatory identity verification for all directors and persons with significant control (PSCs) was emphasized, along with a phased implementation plan.

One of the key takeaways from the event was an updated implementation timeline, as follows:

2024

Autumn/Winter

•  Compliance and Enforcement: Additional compliance and enforcement actions will include financial penalties.
• Strike Off: Companies House gains new powers to strike people off more quickly if registered on a false basis, e.g., if information is false and/or misleading.

2025

Spring/Summer

• Authorised Corporate Services Providers (ACSPs): Anti money laundering s1upervised firms and sole traders can apply to become ACSPs.
• Identity Verification: Individuals can voluntarily verify their identity.
• Protecting and Suppressing Information: Individuals can apply to protect more of their personal information.
• Register of Overseas Entities: Access to trust information on the register of overseas entities will be available upon request.

Autumn/Winter

• Identity Verification begins: All new directors and new persons with significant control (PSCs) must verify their identity. All existing directors and PSCs have a 12-month transition period during which they must verify their identity.

2026

Spring/Summer

• Identity Verification: Anyone filing information with Companies House must have verified their identity.
• Limited Partnerships: a six-month transition period for existing limited partnerships to comply with new rules begins.

Autumn/Winter

• Limited Partnerships: The transition period for limited partnerships ends.
• Identity Verification transition period ends: The end of the identity verification transition period means that anyone owning, running, or filing on behalf of the company must be verified. Compliance activity will begin against those who have not verified their identities.

ECCTA marks a transformative step for company registration in the UK. By enhancing the powers of Companies House, mandating identity verification, and imposing stricter regulations on corporate activities, it creates an enhanced environment of accountability and transparency.

As ECCTA is implemented over the coming years, businesses must stay informed and adapt to the new regulations, ensuring compliance and contributing to a robust corporate governance framework that protects against economic crime.