Update – The Economic Crime and Corporate Transparency Act 2023 and the new identity verification requirements that will impact businesses

The continued focus on economic crime and transparency

The Economic Crime and Corporate Transparency Act 2023 (the "Act") follows in the footsteps of the recent Economic Crime (Transparency and Enforcement) Act 2022 which brought into force the “Register of Overseas Entities”, requiring foreign entities (companies and other entities) to register the details of their beneficial owners with Companies House before the 31 January 2023. The Act, which received royal assent on 26 October 2023, is set to introduce in phased stages throughout the year, further regulations to increase the transparency and reliability of data submitted to Companies House. One significant reform of the Act will be the new identity verification requirements. In this article we expand upon what identity verification will mean for you and your business.

Will I need to verify my identity?

In general, those who are setting-up, managing, or have significant control of a UK company will need to comply with the new identity verification requirements of the Act, when the relevant provisions come into force -

This means that:

• all new and existing directors;
• each "person with significant control" (PSCs), and directors of "relevant legal entities" (RLEs) in relation to a company (beneficial owners); and
• those delivering documents to Companies House,

will be required to verify their identity with Companies House within the relevant time frame or risk committing an offence.

What are the relevant time frames?

Directors

Individuals cannot act as a director unless they have their identity verified first with Companies House. An individual who fails to verify their identity and acts as a director will commit an offence. A company that fails to ensure that an individual is verified before they act as a director, will commit an offence.

For existing directors they will have until the end of the transition period to verify their identity. The transition period is yet to be confirmed.

Beneficial owners

PSCs: Each PSC will have to register their identity and maintain their verified status for so long as they are registered as a beneficial owner with Companies House. New PSCs will be required to verify their identity within 14 days of becoming a PSC (and in respect of a new company formation, the PSCs will have to verify within 14 days from the date of incorporation). If PSCs are not verified after this point they will commit a criminal offence.

RLEs: A RLE will have to verify the identity of a relevant officer and the RLE must maintain the verified status of that relevant officer for so long as the RLE is registered as a beneficial owner with Companies House. RLEs will have to verify the identity of a relevant officer within 28 days of becoming a RLE (and in respect of a new company formation, the RLE will have to verify the identity of a relevant officer within 28 days from the date of incorporation).

The company concerned may choose to provide the verification of the PSCs/RLEs to Companies House, however it does not have to. Companies House will have the power to directly enforce verification obligations against the beneficial owners.

For existing beneficial owners they will have until the end of the transition period to verify their identity. After the relevant provisions of the Act come into force, new company directors must verify before acting, and PSCs must verify within the specified timeframes.

How do I verify my identity?

The Act proposes two methods for identity verification. First you can verify directly by sending the identity documents to Companies House’s online portal, and the second method, to submit them indirectly by an authorised corporate service provider (an “ACSP”) who completes the process for you, such as legal advisers, accountants and company formation agents. An ACSP is a firm that is regulated for the purposes of the UK’s anti-money laundering regime and who has submitted an application to Companies House for authorisation.

According to Companies House verifying ones identity will involve a digital process, by “linking a person with a primary identity document”, for example, a passport or driving licence. The person undergoing verification will be asked to take a photograph of their face, and present their identity document so the two can be compared electronically (although non-digital alternatives will be available for those who cannot access or use the digital service). Companies House aims for this to be completed fully electronically and generally identity verification will be a one-off requirement. Once a person is verified, they obtain verified status. However, there may be instances where re-verification is required (for example, if Companies House has reason to doubt the validity of the verification).

There will be limited exemptions to identity verification, and generally nearly all directors, beneficial owners and those who deliver documents to Companies House on their behalf or on behalf of another will be required to verify their identity.

How long do I have to verify?

Companies House envisages that the identity verification requirements will come into force "later" this year. While we are not aware of when the verification provisions under the Act will come into force, we will continue to monitor the Act's phased rollout.

It is expected that from 4 March 2024 the first phase will come into force, such as the requirements on companies, to have an "appropriate registered office address", and to supply a registered email address, amongst other things. For further details of the changes expected from 4 March 2024, see Companies House's blog here.

What will happen if I miss a deadline to verify?

While the Act will introduce a “transition period” for existing company directors and applicable shareholders to comply with the new identity verification requirements. The Act will introduce new offences for those persons who fail to verify their identity with Companies House within the relevant time permitted.

An individual who fails to comply with the identity verification requirements risks being subject to criminal proceedings, civil penalties, new company formations being rejected, statutory filings being refused and the individual being annotated on Companies House as unverified. For directors, failing to verify could also result in being prohibited from acting as a director.

Next steps

Thompson Smith and Puxon will continue to monitor the Act’s phased rollout. If you would like to discuss the Act and its impact please contact Mary Anne Fedeyko or your usual TSP contact.

You can read more about the Act and what else it is set to introduce here.