Economic Crime and Transparency Bill

As reported previously the Economic Crime and Transparency Bill was introduced in Parliament on 22 September 2022. The Bill had its second reading on 13 October 2022 and has proceeded to committee stage for review. 

Part One of the Bill proposes significant reforms aimed at improving transparency of companies and their directors, shareholders and Persons with Significant Control (PSC), as well as enhancing the role of the Registrar of Companies . The key reforms introduced by Part One of the Bill are considered below. The proposed changes in other parts of the Bill, in particular Part Two (in relation to limited partnerships) or in Part Three (in relation to the Register of Overseas Entities), are not considered in this briefing. More information can be found in our previous Ashurst Governance & Compliance (AGC) update, Issue 26. 

Key reforms in Part One of the Bill

An enhanced role for the Registrar

The Registrar will be expected to ensure that any person required to deliver a document to Companies House does so and that the information filed is accurate and complete. The Registrar's other objectives will include minimising the risk of Companies House records creating a misleading impression and minimising the extent to which companies and individuals can conduct or facilitate unlawful activities.

Currently the Registrar has statutory power to accept documents that do not meet the requirements for proper delivery. The Bill gives the Registrar a new power to be able to reject a document for discrepancies against information already held at Companies House or where the Registrar has reasonable grounds to doubt that the document complies with  information requirements as to its contents.

The Registrar will have the power to request in writing additional information to enable it to determine whether a person has complied with any relevant statutory obligations and whether any document delivered complies with the requirements for proper delivery. An offence will be committed by any person who does not comply with these requirements.

Company and business names

The Bill includes restrictions on the registration of company or business names. A company will be unable to register a company name that is intended to facilitate a dishonesty or deception offence, gives a false impression of a connection with a foreign government or international institution, or comprises computer code. Similarly, a company will be unable use a business name that suggests a connection with a foreign government or international institution. 

If a company is directed to change its name, it will be unable to use the former prohibited name again as either a company or business name. A director of shareholder of the company will also be unable to use the prohibited name in connection with any other company.

Objecting to a company name

It is currently possible to object to a company's registered name if it is sufficiently similar to another name in the UK and, as such, would be misleading in the UK. The Bill introduces an extra-territorial dimension by enabling a person to object to a company's registered name being misleading if it is similar to another name anywhere in the world. 

Directing a company to change name

It is currently possible for the Secretary of State to direct a company to change its name if it is misleading and likely to cause harm in the UK. The Bill expands this power extra-territorially, enabling the Secretary of State to direct a company to change the company name if it is misleading or poses a risk of harm anywhere in the world.

The Bill also permits the Secretary of State to direct a change of company name where it deems that the company name has been used or is intended to be used by the company to facilitate the commission of an offence involving dishonesty or deception. The Secretary of State will also be able to direct a company name change where the name at the time of registration could have been objected to or was illegal. This will shift the burden onto companies to ensure that intended company names are lawful. 

Registered addresses 

Office address 

Companies will need to ensure that their registered office is an "appropriate address", meaning an address where documents delivered would be expected to come to the attention of a person acting on their behalf and where acknowledgment of delivery can be provided. An offence will be committed by a company and its directors if they fail to comply with this requirement. 

Registered email address

Companies will also need to register an "appropriate" email address, meaning an email address where correspondence would be expected to come to the attention of a person acting on their behalf . An offence will also be committed by a company and its directors if they fail to comply with this requirement.

Disqualification of directors 

The Bill creates a new offence for an individual to act as a company director unless the relevant company has notified the Registrar of the director's appointment and confirmed that the director's identity has been verified.

Any individual disqualified under the existing UK directors' disqualification regime may not be appointed as a director of a company without permission from the court. An existing director will automatically cease to hold office if disqualified as a director.

The Bill also makes it an offence for any individual who has become a 'designated person' under the Sanctions and Anti-Money Laundering Act 2018 to be a director of a company or be concerned in its promotion, formation or management without the leave of the court.

The Bill also permits directors to be disqualified for persistently failing to comply with filing obligations and identity verification requirements (see below).

Identity verification

The Bill introduces identity verification procedures for all new and existing company directors, PSCs and those delivering documents to Companies House.

Directors

An individual must not act as a director unless they have verified their identity. A company must also ensure that an individual does not act as a director unless their identity has been verified. An individual who fails to verify their identity and continues acting as a director, or a company that fails to ensure that an individual has been verified, will commit an offence.

Regarding proposed directors, when forming a company, statements will need to be submitted to the Registrar confirming that the proposed directors have verified their identity, and none of them is disqualified or ineligible to be a director. Failure to comply with this obligation will result in the application to form the company being rejected.

PSCs

The Bill includes requirements for PSCs to verify their identity and maintain their verified status as long as they are registered with the Registrar. There are corresponding requirements for registrable relevant legal entities (RLEs) who are required to verify the identity of their 'relevant officer' and maintain the verified status of their registered officer for so long as the RLE is registered with the Registrar. 

The Bill shifts the burden of identity verification onto PSCs and RLEs instead of companies. Although the Bill gives companies the option of providing the Registrar with the required verification confirmation, they are not obliged to do so. This recognises that companies may not always be able to compel their PSCs or RLEs to act. Instead, the Registrar will have the ability to enforce compliance against PSCs and RLEs and arrange for their identity to be verified. 

Individuals delivering documents to Companies House 

An individual will be unable to deliver documents to the Registrar unless their identity has been verified. A disqualified director is barred from delivering documents to Registrar. 

Procedure for verifying identity

The Bill permit's an individual's identity to be verified directly by Companies House or indirectly through an authorised corporate service provider (ACSP). Further details will follow in accompanying regulations yet to be made, however a fact sheet published alongside the Bill provides that where identity is to be verified directly by Companies House, a primary document (passport or driving licence) will be scanned alongside the individual's face for comparison and confirmation of identity. 

ASCPs are likely to be intermediaries, such as accountants, legal advisers and company formation agents, and will need to be registered with a supervisory body for anti-money laundering checks. Any identity verification checks undertaken by ASCPs must achieve the same level of assurance as identity checks undertaken by Companies House.

Forming a new company

A company's application to register a new company must state that its subscribers wish to form the company for lawful purposes. The application must also include statements confirming that the proposed directors and any PSCs are not disqualified from acting as a company director. When a company submits its confirmation statement, it will have to provide a statement that its intended future activities will be lawful.

Company registers

The Bill abolishes the existing requirement for companies to maintain certain internal registers including the register of directors, the register of directors' residential addresses, the register of secretaries, and the PSC register. Instead this information will have to be communicated to the Registrar and will be kept at Companies House. There will be a corresponding duty for companies to update this information. 

The Bill removes the option that a private company currently has to keep its register of members on the central register at Companies House. It will be necessary for every company to maintain its own register of members. Companies will also need to include the full forename and surname for individuals members on the register of members. 

One-off confirmation statement 

The Bill requires companies to make a one-off confirmation statement after it comes into force. Private companies will need to provide the name and address of each member and the number of shares of each class that they hold. Publicly traded companies must provide the name and address of each member who holds at least 5 per cent of the issued shares of any class of the company and the number of shares of each class that they hold. 

Financial reporting

Exemption from audit

The Bill provides that a company claiming exemption from audit will have to include on its balance sheet a statement by its directors identifying the relevant exemption and confirming that the company qualifies for it. 

Filing

The Bill also simplifies the existing filing regime for small and micro-entity companies.  

Companies that qualify as small companies will be able to file a profit and loss account and a directors' report. Companies that qualify as micro-entities will be able to file a profit and loss account but will have the option of filing a directors' report. 

Offences and enforcement 

Currently if a person knowingly or recklessly delivers a document or makes a statement to the Registrar that is misleading, false or deceptive, they can be fined and/or imprisoned for a term of up to two years.

The Bill splits the "false statement offence" into two separate categories: a basic offence and an aggravated offence. The basic offence applies when a person, without reasonable excuse, delivers a document or makes a statement to the Registrar that is misleading, false or deceptive. The punishment for a person culpable of committing the basic offence is a fine.

The intention is to punish those who should have been able to prevent a false document from being delivered or a false statement from being made but failed to do so without a reasonable excuse.

The aggravated offence applies when a person knowingly delivers or causes to be delivered a document or makes a statement to the Registrar that is misleading, false or deceptive. The punishment for the aggravated offence is a fine and/or imprisonment for a year.