Ashurst Governance & Compliance Update – Issue 47

Economic Crime and Corporate Transparency Act 2023

1. Companies House announces first draft of company administration changes from March 2024

In our briefing on the key implications of the Economic Crime and Corporate Transparency Act 2023, we highlighted that Companies House expected certain company law changes to be introduced early this year. 

The Registrar of Companies for England and Wales has now confirmed that various of these measures will take effect in March 2024. These include:

• Greater powers for Companies House to query information and clean up the register using data matching to identify and remove inaccurate information.
• Stronger checks on company names.
• New rules requiring companies to have an 'appropriate' registered office address.
• A requirement for all companies to supply a registered email address.
• A requirement for all companies to confirm their formation is for a lawful purpose.
• Annotations to the register to let users know about potential issues with information supplied to Companies House.

In readiness for these changes, companies might wish to consider the questions and issues set out below.

Do you use a PO Box as a company registered office address?  If so, this will soon need to change as every company will be required to ensure that its registered office address is a place where documents can be accepted and acknowledged by a person acting on its behalf. An offence will be committed by a company and its directors if they fail to comply with this requirement.

Does your company have a formal email address?  If not, it will need to register an email address with Companies House where any correspondence will come to the attention of a person acting on the company's behalf. An offence will be committed by a company and its directors if they fail to comply with this requirement. 

Is the information held by Companies House about your company accurate and up to date?  If not, it would be prudent to ensure that any known errors, omissions or inconsistencies are addressed because the Registrar will soon be able to flag information in relation to which it has concerns by annotating that information on the public register. This will be part of a range of new powers under which the Registrar will also be able to clean up the register, using data matching technology to identify and remove inaccurate information. The Registrar will also be able to share data held at Companies House with other government departments and law enforcement agencies.

Does your process for filing information at Companies House need to be improved?  If so, you should ensure that this is actioned as the Registrar will soon also have greater powers to scrutinise, query and reject information that appears incorrect or inconsistent with information already held at Companies House. In some cases, the Registrar will be able to remove information from the public register.

Are you likely to be involved in setting up a new company?  If so, the process of forming a new company will soon involve an additional step involving the applicant confirming that the company is being formed for lawful purposes. In addition, the company will need to confirm annually in its confirmation statement that its future activities will be lawful.

Further guidance about these changes will be published in a Companies House blog. We will also cover them in future AGC updates.

The following draft regulations have been published:

• the Registered Office Address (Rectification of Register) Regulations 2024 which will empower the Registrar to change a company's registered office address where it is satisfied that it is not an 'appropriate address';
• the Service Address (Rectification of Register) Regulations 2024 and Principal Office Address (Rectification of Register) Regulations 2024, which give the Registrar similar rectification powers in relation to registered service and principal office addresses notified to Companies House;
• the Limited Liability Partnerships (Application of Company Law) Regulations 2024, which apply certain ECCTA provisions to LLPs; and
• the Economic Crime and Corporate Transparency Act 2023 (Consequential, Supplementary and Incidental Provisions) Regulations 2024, which make various consequential amendments to existing legislation to enable the ECCTA 2023 to take full effect when enacted.

2. Revised 'identification doctrine' comes in to force

On 26 December 2023, those provisions of the ECCTA 23 which extend the existing common law identification doctrine came into force. This allows for the attribution of criminal liability to corporations for economic crimes committed by the 'senior managers' (and not just board members) of an entity. Our September 2023 briefing considered the significant impact of these provisions in more detail. 

Proposals to extend this principle further are also contained in the draft of the Criminal Justice Bill which is currently making its way through Parliament. As drafted, this would extend the identification doctrine to all criminal offences committed by senior managers (and not just economic crimes). More on this in our next AGC Update. 

Payment Practices Reporting

3. Draft regulations published to extend payment practices and performance reporting regulations

Draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024 have been published and laid before Parliament, together with a draft Explanatory Memorandum. 

The draft regulations will amend the Reporting on Payment Practices and Performance Regulations 2017 (SI 2017/395) and the associated Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (SI 2017/425) (together, the 2017 Regulations) which require large companies and LLPs to publicly report twice a year on a government web service about their payment practices, policies and performance in relation to paying suppliers. 

The 2017 Regulations were introduced to increase information and transparency in the market regarding the payment practices and performance of large businesses, giving small businesses greater understanding of those they do business with, without unduly interfering with freedom of contract. However, according to the government, late payment remains a significant issue for UK businesses, particularly small businesses. 

The draft regulations follow publication of the government's response to an earlier consultation on proposals to extend and improve the 2017 Regulations. Under the draft regulations, the 2017 Regulations will be extended by seven years beyond their current sunset date of 6 April 2024 and will now expire on 6 April 2031. 

The draft regulations carry forward the existing reporting requirements. In-scope companies and LLPs will also be required to disclose new information, including the total value of invoices paid, in addition to the existing reporting requirement relating to the volume of invoices. Businesses will also be required to report on the proportion of invoices that are disputed which subsequently result in payments being made outside the agreed payment terms. 

The draft regulations are expressed to come into force on 5 April 2024.

ESG

4. Companies commit to TNFD nature-related corporate reporting

The Taskforce on Nature-related Financial Disclosures (TNFD) announced at the World Economic Forum's annual meeting in Davos that 320 organisations from over 46 countries have committed to make nature-related disclosures based on the recommendations which the TNFD published in September 2023 (see AGC Update, Issue 41). 

The TNFD's recommendations are currently voluntary. The UK government is currently considering how the recommendations should be incorporated into domestic policy and legislation. Nevertheless, the TNFD has encouraged organisations to adopt its recommendations, undertaking to list early adopters (see TNFD makes major contribution to sustainability reporting landscape). 

The first cohort of early adopters include 178 publicly listed companies representing US$4 trillion in market capitalisation and include well-known names like Mitsui, Drax, and Hitachi as well as institutions such as the BBC and the London Stock Exchange Group. The cohort also includes 106 financial institutions representing US$14 trillion in assets under management and 7 of the 29 global banks considered systemically important. 

While 43 per cent of early adopters are based in Europe and 42 per cent are based in APAC, only 6 per cent are based in North America, potentially reflecting the politicisation of ESG-related reporting in the US. 

The TNFD's 'Adopter FAQs' state that TNFD-aligned disclosures can be integrated with TCFD-aligned climate-related disclosures. The TNFD intends to publish annual status reports that analyse market adoption rates of its recommendations. These will be similar to the status reports published by the Taskforce for Climate-Related Financial Disclosures.

EU Compliance

5. Directive adjusting size criteria for EU companies published in Official Journal 

The delegated directive amending the Accounting Directive ((EU) 2013/34) to adjust the size criteria (balance sheet and net turnover) for qualification as a micro, small, medium-sized or large company has been published in the Official Journal. The changes adjust the thresholds by 25 per cent and have been made principally to account for inflation. These are a timely change given various new and onerous reporting requirements being implemented across the EU for companies of a certain size, the Corporate Sustainability Reporting Directive being just one.

The published text is in the same form as the text adopted by the European Commission in October 2023 and is now in force.

Member States must bring into force laws, regulations and administrative provisions necessary to comply with the directive by 24 December 2024 at the latest.

6. European single access point: consultation on draft implementing technical standards

The European Supervisory Authorities (EBA, EIOPA and ESMA) have published a consultation paper on the draft implementing technical standards regarding the tasks of the collection bodies and the functionalities of the European Single Access Point (ESAP). The ESAs are required to develop such standards under Article 5(10) (Tasks of the collection bodies and responsibilities of entities) and Article 7(4) (Functionalities of ESAP) of Regulation (EU) 2023/2859 (ESAP Regulation). The ESAP Regulation was published in the Official Journal on 20 December 2023 and entered into force on 9 January 2024 (see Legal update, EU: European single access point legislative package published in Official Journal).

Article 5 of the ESAP Regulation specifies the tasks of the collection bodies, being the bodies to which reporting entities should submit information which will then be submitted to ESMA. This includes the format and timing of feedback where collection bodies reject information submitted to them.

Article 7 of the ESAP Regulation requires that ESMA ensure that the ESAP search system provides a minimum set of functionalities. The consultation seeks feedback on matters including those relating to how information will be categorised for search purposes. This includes the classification of the "types of information" referred to in Article 1(1) of the ESAP Regulation to be submitted to collection entities. The proposed types of information are listed in the table in paragraph 114. It also addresses the categories of the size of the entities. It does not propose to introduce categories and thresholds that would apply to entities submitting information to ESAP, but rather to use existing size categories or thresholds used in relevant legislation, and seeks feedback on this approach. The characterisation of industry sectors is also considered in the consultation. For non-financial entities, the main section of the Statistical Classification of economics activities in the European Community (NACE) as defined in Regulation (EC) 1893/2006 is suggested. For financial entities, it is suggested that the classification system could build on existing definitions of financial entities, similarly to the classification adopted by ESMA in the context of derivatives reporting under Article 9 of the European Market Infrastructure Regulation (EMIR).

Feedback to the consultation is requested by 8 March 2024. The ESAs will publish a final report and submit the draft ITS to the European Commission by 10 September 2024.

Source: Consultation paper: Draft Implementing Technical Standards specifying certain tasks of collection bodies and certain functionalities of the European single access point under Regulation (EU) 2023/2859 (JC 2023 78) and press release.

Authors: Will Chalk, Rob Hanley, Becky Clissmann and Shan Shori