Launching her new corporate plan, Louise Smyth, chief executive and registrar of companies for England and Wales, describes 2022/23 as ‘one of the most significant years for Companies House since it was created in 1844’. Reform, long awaited, is now happening.
Most attention has focused on the new register of overseas entities (ROE), a key anti-money laundering (AML) initiative. ROE, which went live on 1 August 2022, aims to ensure that foreign owners of UK property cannot remain anonymous but must reveal their identity.
In addition, more wide-ranging changes to Companies House are scheduled to improve the accuracy and integrity of register information and safeguard against unlawful or misleading activity. Although less commented on, these are important reforms. Directors must be aware of them as they have practical implications for business.
The aim is to transform a passive administrator of corporate information into an active gatekeeper
Crime and confidence
Companies House is an executive agency of the UK government, sponsored by the Department for Business, Energy & Industrial Strategy. It incorporates and dissolves companies, registers company information and makes it publicly available with free access. More than 1,000 people work for Companies House throughout the UK, with the majority based in Cardiff. It incorporates over 500,000 new companies a year, and at the end of 2021 held information on 4.8 million companies.
The agency has two overarching objectives: to tackle economic crime and to drive confidence in the UK economy. It has a good track record of customer service. The transparency of information held on its registers together with free public access helps to build trust and confidence. Speed is another attraction – anyone can form a company in a matter of minutes for minimal cost because there is no requirement for individuals to prove their identity.
However, this loophole provides opportunities for money launderers and fraudsters. The performance of Companies House in tackling economic crime has not been impressive, despite the creation of a people with significant control (PSC) register in 2016, which provides information about individuals who own or control companies.
Lacking resources and with limited powers, Companies House has largely been a passive recipient of information rather than an active veracity checker. There has only ever been one prosecution for filing false information – and the individual prosecuted had reported his own deliberate filing of false data to Companies House.
Russian loot
The war in Ukraine provided the catalyst for change. It highlighted deficiencies in the UK’s AML regime and also accelerated the need to crack down on illicit Russian money in the country. Weaknesses at Companies House were a concern and, among various measures taken, the government expedited two pieces of legislation through parliament in 2022, designed to address them.
The first is the Economic Crime (Transparency and Enforcement) Act 2022. It focuses on the threat of Russian cash looted from the former Soviet Union and now buried in UK property assets where the true owners are hidden by secretive shell companies registered in offshore tax havens.
The act creates a public ROE giving details of the beneficial ownership of overseas entities with UK property holdings. This increased transparency helps to crack down on foreign criminals and deter them from using UK property to launder money. Companies House has enforcement powers for non-compliance with the register.
The act also reforms and strengthens the UK’s Unexplained Wealth Order regime to improve support for law enforcement investigations, and allows the government to move faster when imposing sanctions.
An individual will not be able to act as a director until their identity has been verified
Reform bill
The second piece of legislation is the Economic Crime and Corporate Transparency Bill, which was tabled in September 2022 to ‘bear down further on kleptocrats, criminals and terrorists who abuse our financial system’.
The bill encompasses wide-ranging measures to tackle economic crime and improve transparency over corporate entities. The reforms it will introduce include preventing the abuse of limited partnerships, and equipping law enforcement agencies with new intelligence-gathering powers and additional powers to seize and recover suspected criminal crypto-assets. Central to the bill is extensive reform of the role and powers of Companies House.
The proposals in the bill are based on the government’s white paper published in February 2022 following consultation. They provide Companies House with additional powers to fight economic crime and support law enforcement while promoting a more accurate register. The aim is to transform Companies House from a passive administrator of corporate information into ‘an active gatekeeper over company creation and custodian of more reliable data’.
Key measures
The bill’s key measures include identity verification, new powers for Companies House, and changes to filing requirements.
New identity verification requirements are proposed for all directors (existing and newly appointed), all people with significant control, and those submitting documents. They will all need a verified account with Companies House, requiring a photograph that will be matched against an identifying document. An individual will not be able to act as a director until their identity has been verified.
The registrar will now have the power to query and reject any filing that appears inconsistent with other information and require additional information in relation to filings, allowing the registrar to query material that is potentially fraudulent or suspicious. The registrar will also be given the power to share data with regulators and law enforcement.
Among the changes to filing requirements are that small companies will no longer have the option to prepare and file abridged accounts. They will be required to file both their profit and loss account and directors’ report, as will micro-entities. Company accounts must be filed in digital format, and dormant companies must file an eligibility statement. Although there has been some discussion about shorter deadlines for filing accounts, no proposals have (yet) been submitted.
The Economic Crime and Corporate Transparency Bill is unlikely to become law until 2023 at the earliest and may yet be amended, so directors should ensure they keep up to date. The government will provide guidance on implementation.
One thing looks certain: transactions involving companies are likely to take longer in the future because of the expanded mandate of Companies House.
Risk on the agenda
You might also be interested in our Accounting for the Future conference session ‘Risk culture and future performance: how accountancy professionals make a difference’. Find out more about this and the other sessions. You can register to watch the sessions live – they will run from 29 November to 1 December – or on demand, and earn up to 15 CPD units.
