The Economic Crime and Corporate Transparency Bill will fundamentally change Companies House’s role. Indeed, this is the biggest change to Companies House since 1844. It is designed to give the agency the powers it needs to play a more significant role in tackling economic crime.

It’s widely known that the UK has one of the largest and most open economies in the world. However, this openness exposes the UK to criminals who want to use our corporate structures for illicit purposes. ICAEW has long campaigned around the necessity for reforms to Companies House. This was brought into sharp focus following the Russian invasion of Ukraine in 2022.

Among the concrete steps introduced via the Bill, one of the most significant changes is the introduction of the Register of Overseas Entities (ROE), which will be discussed in more detail later in the article. Additional reforms to Companies House include:

• introducing identity verification for all new and existing registered company directors, people with significant control and those who file on behalf of companies;
• broadening the registrar’s powers so that it can become a more active gatekeeper over company creation and a custodian of more reliable data;
• improving the financial information on the register so that it is more reliable and accurate, reflects the latest advancements in digital technology, and enables better business decisions;
• providing Companies House with more effective investigation and enforcement powers, and introducing better cross-checking of data with other public and private sector bodies;
• enhancing the protection of personal information provided to Companies House to protect individuals from fraud and other harms; and
• changing the filing requirements for smaller businesses; please see ICAEW analysis here.

These are all very welcome steps and will assist both public and private sector bodies in their fight against economic crime. However, the only measure (aside from the Economic Crime Levy) that is currently in use and subject to active legislation is the Register of Overseas Entities.

Register of Overseas Entities

The Register of Overseas Entities aims to create a new global standard for transparency, particularly around aspects of ownership. Entities who do not declare their ‘beneficial owner’ will face restrictions over selling their property, and those who break the rules could face up to five years in prison.

The Register of Overseas Entities came into force on 1 August 2022. Overseas entities in scope who already owned property or land in the UK were required to register within a six-month transition period, by 31 January 2023.

Under the new legislation, UK-regulated agents supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 must complete verification checks on all beneficial owners and managing officers before they can be registered.

As of late June 2023, there are more than 28,000 entities on the register. The information on the register has been searched more than 500,000 times. The high number of searches shows the register is increasing transparency about who owns UK property and land, Companies House assesses, although ICAEW members have reported some challenges in the register’s usability.

All entities on the register need to file an update statement every year to confirm that the information held by Companies House is correct and up to date. They must file an update statement even if nothing has changed. It’s a criminal offence not to file the update statement and entities may face prosecution or a financial penalty if they do not file.

Overseas Entity IDs will become invalid if an entity does not file the update statement in time. They will not become valid again until they bring their record up to date and file their update statement. Theoretically, this means entities will not be able to buy, sell, transfer, lease or raise charges against property or land in the UK if they miss their filing deadline.

The update statement is an important step in making sure the data on the register is as accurate as possible and to make sure overseas entities continue to comply with their responsibilities. If any information has changed since the entity registered, a UK-regulated agent must complete verification checks to confirm that the information is still accurate.

If nothing has changed, no additional verification will be needed. Overseas entities that have not registered with Companies House already face restrictions on selling, transferring, leasing or raising charges against their property or land. Overseas entities also cannot buy any new UK property or land without an Overseas Entity ID.

ICAEW has expressed significant concerns to the Department for Business and Trade and Companies House with regards to the legal liability associated with verification of overseas entities. If a professional accountant undertakes verification and does not carry out the process correctly, then they open themselves up to criminal prosecution, regulatory sanctions and liability for professional negligence.

Due to the challenges of carrying out verification, it is likely that many professional accountancy firms will not routinely offer this service because satisfying the necessary criteria may be overly onerous and/or risky.

Penalties

When updating the range of possible penalties, the government will provide the Secretary of State with the power to introduce a financial penalty regime via secondary legislation. This will enable the registrar to impose a financial penalty directly as an alternative to pursuing criminal prosecution through the courts. This financial penalty regime will sit alongside criminal sanctions; the government envisages that the criminal route will be more likely to be used only in more egregious cases.

The government will also amend or create offences in relation to:

• the Registrar of Companies’ new powers;
• new requirements for Authorised Corporate Service Providers;
• identity verification;
• company names;
• limited partnerships;
• false statement offences;
• the protection of personal information;
• the transparency of ownership; and
• the Register of Overseas Entities.

The offences in scope are any contained within the Companies Act 2006, other than in Parts 12 (company secretaries), 13 (resolutions and meetings) and 16 (audit). The new financial penalties regime will not allow for criminal prosecution for an offence that is pursued through a civil route.

The registrar would need to make an active decision on whether to pursue a civil sanction or pass the case to law enforcement to consider criminal prosecution. As with many of these changes, the measures will require consequential changes, new secondary legislation and guidance, and system development, following Royal Assent of the Bill.

Conclusion

ICAEW welcomes these further measures and has campaigned for these changes for a number of years.

The government aims to deliver these changes through identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the registrar. This seeks to improve the accuracy of Companies House data, support business decisions and law enforcement investigations.

In addition, the legislation aims to broaden the Registrar of Companies House’s powers so that the registrar can become a more active gatekeeper over company creation. It will become a custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the companies register.

ICAEW members will be at the forefront of delivering these changes, working closely with Companies House on the effective implementation of the reforms. ICAEW will continue to play a leading role to support the government in clamping down on money laundering in the UK, working with stakeholders and members to maximise these new measures’ effectiveness.

However, the ability to implement these changes will be dependent on a sufficient level of resource to ensure that these new powers can be utilised effectively. Without increasing resources, the ability for Companies House to deliver on their new, stated goals will be severely inhibited.

Given that the Bill has faced numerous legislative hurdles, including proposed amendments to the legislation which ought to be opened up to far more scrutiny, both Parliamentary and in consultation, the progress of implementing the changes has not yet begun in earnest.

ICAEW welcomes the introduction of the Register of Overseas Entities, but notes that not all of those required to register have yet done so. It urges the government to once again consider the strict legal liability clause of verification which is deterring a significant number of established, reputable accounting firms from offering this service.

When the Bill receives Royal Assent, ICAEW and its members will work closely with the government and other stakeholders to ensure that the accountancy profession supports the practical and effective implementation of these measures, given their importance to reducing the threat of economic crime in the UK.

Related article: Companies House: a cornerstone in the fight against economic crime