Protecting Your Business: The Impact of the Economic Crime and Corporate Transparency Act 2023

The Economic Crime and Corporate Transparency Act 2023 introduces a wide range of reforms to improve the accessibility and transparency of corporate information with Companies House. A key focus under the Act, is to reduce economic crime by broadening identity verification requirements for new and existing company directors and beneficial owners.  Having received Royal assent in October 2023, these reforms will be coming into force in stages commencing on the 4 March 2024, with others likely to take effect later in 2024 and 2025.

Some of the key changes relevant to UK companies include:

Role of Companies House

The role of Companies House will change from being a passive recipient to an active gatekeeper of company information. It will have new powers and objectives to improve the overall accuracy of information on the register, with new powers to request information and supporting evidence (to be used, in particular, when Companies House identifies potentially fraudulent or suspicious information), query inconsistencies, reject filings if they appear inconsistent with information held on the register, require that information is filed digitally, remove or correct published filings (provided that Companies House is satisfied that such removal or correction requested by the company or applicant, outweighs the interest of any other third party) and impose further fines and criminal sanctions. Companies House fees will be increased to fund its new functions.

A failure to comply with (or a failure to provide sufficient information in response to) a formal query for information from Companies House will be a criminal offence punishable by a fine or prosecution.

The UK government has announced that it will publish guidance to help businesses understand how and why Companies House’s new powers might be used and to provide examples of appropriate evidence.

Identity Verification

New identity verification requirements will be introduced for all (unless exempt) new and existing company directors, persons with significant control, registrable officers of relevant legal entities and those who deliver documents to Companies House. Failure to comply will be a criminal offence (punishable by a fine), and any documents delivered to Companies House by an unverified person will be rejected. It will also be a specific new offence for a person to act as a director without having their identity verified first with Companies House. For further information on the new identity verification requirements, please click here.

Administration Changes

Companies will no longer be required to maintain local registers of its persons with significant control, directors, directors’ residential addresses and secretaries. Registers of members will now be required to reflect the full names of shareholders (without abbreviations). Further, a company’s registered office will need to be an “appropriate address” where a delivery can be acknowledged and come to the attention of a person acting on behalf of the company and therefore a PO Box registered office address will not be permissible.

From the 4 March 2024, companies will be required to provide a “registered email address” to Companies House (this will not be public). Existing companies will be required to provide their registered email address when they file their next confirmation statement (with the date of the statement being 5 March 2024). Companies will have a new duty to maintain an appropriate registered email address in the same way, as their registered office address. Failure to comply with these requirements will be a criminal offence.

Confirmation Statement

In addition, a “one-off” confirmation statement will be required to be filed by all limited companies setting out details of all shareholders of the company and accounting requirements for micro-entities and small companies are set to become clearer to understand, requiring micro-entities (unless exempt) to file a balance sheet and a profit and loss account and small companies that do not meet the micro-entity threshold to file annual accounts. Small companies will no longer be able to file abridged accounts or filleted accounts.

Failure to prevent fraud offence

Certain large companies, with more than 250 employees, over £36m turnover or over £18m in assets, will become liable under a new offence of failing to prevent a fraud if it is unable to prove that it took reasonable precautions to prevent fraud. Companies will need to ensure that they have reasonable fraud prevention policies and procedures in place (and staff training) to cover this. An organisation will be liable, if an employee or agent of the organisation commits a specified fraud offence and the organisation did not have reasonable fraud prevention policies and procedures in place.

Corporate Exposure to Criminal Liability

Criminal liability will be extended to companies in respect of the economic crimes of a ‘senior manager’ acting within the actual or apparent scope of their authority.

Whilst these changes pose a greater risk for large businesses with multiple layers of senior management, necessitating appropriate procedures to be put in place for training, particularly for senior management, regardless of size, the changes to company administration and identification verification requirements will place additional burden on companies to remain compliant. It is therefore crucial for business owners and managers to fully understand the obligations they will be under to avoid possible liability.

Corporate and Commercial Legal Support

For advice or guidance on the above and any legal matters relating to your business, contact a member of the Corporate and Commercial team at Thompson Smith and Puxon on 01206 574431 or email info@tsplegal.com.