The Economic Crime and Corporate Transparency Bill - corporate aspects

As part of its ongoing legislative strategy to crack down on economic and financial crime, the Government has published its Economic Crime and Corporate Transparency Bill (the Bill).

This is a significant piece of legislation, running to 250 pages, including what the Government calls ‘historic’ reforms of Companies House, enhancements to regulators’ powers and industry information-sharing that will directly impact firms in the financial sector, anti-money laundering practices and enforcement against crypto involved in illicit activities. The Bill follows on from the Economic Crime (Transparency and Enforcement) Act from March of this year, which introduced (among other things) the register of overseas entities, strict liability for breaches of financial sanctions and enhancements to the ‘Unexplained Wealth Order’ regime (see our article here).

Given the importance of this wide-ranging bill, we have published a two-part series of articles covering the key proposals. This article focuses on the corporate aspects of the Bill, in particular the reforms to Companies House. We have published a separate article here dealing with the criminal aspects, including new investigative and enforcement powers for law enforcement and for regulators of the legal profession. All provisions of the Bill are related, however, in that they share the common aim of tackling economic crime.

Enhanced powers for the Registrar

The Bill introduces a number of measures set out in the White Paper on corporate transparency and register reform published in February. These proposals have been heralded as the most important reforms to the UK companies registrar since it was established in 1844.

Under these proposals, Companies House is no longer to act as a largely passive administrator of corporate information, but to become an “active gatekeeper over company creation and custodian of more reliable data”. The Registrar would be given a new role to promote and maintain the integrity of the companies register and the UK’s business environment, with a range of new powers including:

• Power to query filings: The Registrar may query (and reject) a filing where it appears inconsistent with other information the Registrar has and the Registrar has reasonable grounds to doubt whether the document complies with any requirements as to its contents.
• Power to require additional information: The Registrar will also be able to require further information in relation to filings (to be provided within a specified period), with the aim that this will allow the Registrar to query material that is potentially fraudulent or otherwise suspicious. Failing to comply with such a request is a criminal offence.
• Power to require inconsistencies to be resolved: The information the Registrar can consider when deciding whether a document is inconsistent with other information held by it will be expanded.
• Power to remove information: The Registrar will also have the power to remove from the register information which was accepted despite not meeting all requirements .
• Information sharing powers: The Registrar will have the power to proactively share data with regulators, law enforcement and other public authorities either to assist with the exercise of the Registrar’s functions or the exercise of a public authority’s functions.
• Change a company’s registered office address: The Registrar can change a company’s registered address if it is not using an “appropriate address” and sanction a company (including with fines or strike-off from the register) if its registered office address is persistently incorrect.

Identity verification

The Bill envisages new identity verification requirements for all directors (both existing and newly appointed), all Persons with Significant Control (PSCs) and those submitting documents to the Registrar. The process will be broadly consistent with the verification requirements applying to beneficial owners under the Register of Overseas Entities (see our practical guide to that here).

The Bill provides that an individual cannot act as a director until their identity has been verified. It also makes it an offence for a person to act as a director unless Companies House has been notified of their appointment within 14 days of such appointment. In practical terms, this could be interpreted as meaning an individual should not take any actions in the capacity of a director unless (1) their identity is verified and (2) their appointment has been notified. This may affect the day to day operations of companies, but could have a bigger impact on transactions (specifically from a timing perspective).

Company names

The Bill expands the circumstances where the use of a company name can be prohibited to include names that could be used to facilitate crimes, names suggesting connections with foreign governments, names containing computer code and names that give a misleading indication of activities. In addition, where a direction has been given to change a name, that company (or another company that is connected with the first company) must not carry on business under the prohibited name.

Other measures

Further changes to Companies House envisaged under the Bill include new measures to:

• increase the transparency of information held about shareholders by requiring companies to record the full names of shareholders in the register of members;
• enhance requirements for the accounts filed by micro-entities and small companies to improve financial information available on the register;
• abolish the requirement to maintain local registers of directors, secretaries and PSCs; and
• introduce a duty to maintain a registered email address.

The White Paper also set out certain restrictions to be introduced on the use of corporate directors (as explained in our article on the White Paper). However, these changes are not included in the Bill. A government Fact Sheet suggests that these changes will be addressed in regulations to be brought in in parallel.

Limited Liability Partnerships (LLPs)

The government has stated that any entity which registers at Companies House will fall within the scope of the transparency reforms, including LLPs. Secondary legislation is expected in due course to make the necessary amendments to the legislation governing LLPs.

Limited partnerships

The Bill also proposes significant changes to limited partnership legislation aimed at tackling the misuse of limited partnerships (LPs), which would apply to all existing and new LPs (including Scottish LPs), with a six month transitional period for existing LPs to comply with the new requirements. The proposals include:

• additional information to be provided on all partners including, for individuals, their name, date of birth, residential address and country of residence and for corporate entities, their name, registered address, legal form and law by which they are governed.
• a requirement to provide details about the general nature of the partnership business.
• a requirement for LPs to maintain a connection to the UK.
• restrictions on general partners to ensure that general partners are not disqualified under director’s disqualification legislation.
• a requirement to notify Companies House (within 14 days of the change occurring) of any changes in partners, name of the LP, principal place of business and the general nature of the partnership business.
• a requirement for LPs to submit an annual confirmation statement confirming that the information held on the register about it is correct.
• mandating the use of an authorised corporate service provider (that is supervised for anti-money laundering purposes) to deliver documents to Companies House.
• clarifications to the dissolution process for LPs.

The Bill also attempts to ‘future proof’ the changes to LPs by introducing a mechanism by which any reforms to company law may also be reflected in the regulatory regime applicable to LPs.

What do the reforms to Companies House mean for you?

The reforms will, in particular, have an impact on the speed at which certain changes for companies can be made, whether due to additional processes (verification) or powers of the Registrar to query information. This could also have a knock on effect on the timing of any transactions involving companies.

The Government has stated that it is backing up these reforms with a 5-year programme to transform Companies House, supported by an investment of £20m in 2021-22 and a further £63m announced up to 2024/25 in the Autumn 2021 Spending Review. Ultimately, the success or failure of the reforms is likely to be determined by whether this resourcing package is sufficient to ensure Companies House can meet its dramatically increased mandate.

Next Steps

The Bill is next due to be considered by the House of Commons on 13 October 2022. There may be some pressure to move the Bill forward at pace given the Government’s ongoing desire to be seen to be cracking down on economic crime, but it is exceptionally unlikely that it will be moved forward as fast as its predecessor – the Economic Crime (Transparency and Enforcement) Act 2022, which became law in only two weeks following the Russian invasion of Ukraine. Presuming the Bill does in fact progress, we expect it to become law (subject to the parliamentary process) during the course of 2023. The Bill is likely to be amended, and – given the focus on economic crime matters by both the Conservative and Labour parties in 2022 – that amendment process could introduce significant further reforms.