On 4 September the Economic Crime and Transparency Bill returned to the House of Commons to discuss proposed amendments from the House of Lords. Once final changes have been agreed, the much-anticipated legislation will receive Royal Assent – most likely in the coming weeks. While Royal Assent is when the Bill becomes an Act and becomes law, some elements of the Act will not come into force immediately.
The Bill has been making its way through parliament since last September and follows the fast-tracked introduction of the Economic Crime (Transparency and Enforcement) Act in March 2022 in response to Russia’s invasion of Ukraine.
Taken together the two pieces of legislation bring in stronger powers to tackle money laundering and other illicit activity, as well as introduce long-awaited reforms to Companies House. New measures include:
- reforms to prevent the abuse of limited partnerships;
- additional powers to seize and recover suspected criminal crypto assets;
- reforms to give businesses more confidence to share information to tackle economic crime;
- introducing identity verification for registered company directors, people with significant control and those who file on behalf of companies;
- improving the financial information on the register so that it is more accurate;
- providing Companies House with more effective investigation and enforcement powers, and introducing better cross-checking of data with other bodies;
- enhancing the protection of personal information provided to Companies House; and
- changing the filing requirements for smaller companies.
Changes to accounts and filing
One of the significant impacts that the new legislation will have on accountants and the clients they act for are the changes to filing requirements for smaller companies.
The Bill streamlines the filing options for small companies that will no longer have the option to prepare and file abridged accounts. Instead, they will have to file both their profit and loss account and directors’ report.
Companies filing under the micro-entities regime will similarly be required to file their profit and loss account but will continue to have the option not to prepare or file a directors’ report.
The Bill also includes a requirement for an entity eligible for audit exemption – including a dormant company – to identify the exemption being taken and to confirm that the company qualifies to take it.
Additionally, Companies House is granted broader powers to verify the integrity of documents submitted. Any documents that are not consistent with information held by or available to the Registrar will be rejected and treated as having not been delivered.
Further changes, while not explicit in the Bill, are likely to lie ahead. The Bill gives the Registrar authority to mandate the manner in which documents are delivered, paving the way to require electronic delivery of digitally tagged accounts in the future.
New verification responsibilities and consequences
The Economic Crime (Transparency and Enforcement) Act introduced the Register of Overseas Entities (ROE), which requires overseas entities that own land or property in the UK to declare a beneficial owner.
Under the Bill, 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.
The legislation states that failure to complete checks is a strict liability offence – meaning that if a professional accountant undertakes verification and does not carry out the process correctly, they open themselves up to criminal prosecution, regulatory sanctions and liability for professional negligence.
While welcoming the introduction of the ROE, ICAEW has repeatedly expressed its concerns with regards to the legal liability associated with verification of overseas entities. Due to the challenges of carrying out verification, it seems likely that many professional accountancy firms will not routinely offer this service because satisfying the necessary criteria may be overly onerous and/or risky.
- Read ICAEW’s call on the Lords to amend the Bill
- Read more on the proposed changes to the Register of Overseas Entities and their implications
There are a number of areas where secondary legislation will be used in conjunction with the two Economic Crime Acts. The Secretary of State will have the power to use such legislation to create a penalties regime, enabling the Registrar to impose financial penalties directly as an alternative to pursuing a criminal prosecution.
On the filing side, secondary legislation is anticipated to be used to clarify the format of profit and loss accounts that must be filed by small and micro entities, as well as impose a limit on the number of times a company can shorten its accounting reference period.
Supporting members moving forward
ICAEW will provide guidance and support for members on the changes and will continue to make members aware of further developments in the way of secondary legislation.
When the Bill receives Royal Assent, ICAEW will work with the government to ensure that the accountancy profession supports the practical and effective implementation of these measures.
Economic crime hub
In these articles and videos, we explore the latest trends and perspectives on economic crime from around the world, and look at how chartered accountants can help prevent it happening.
Fraud is usually taken to mean the gaining of an illicit advantage through deception and in particular the manipulation of financial information or accounting records.
Guidance and other work that ICAEW has done on anti-money laundering law and practice, in the UK and internationally.
Expert analysis on the latest national and international economic issues and trends, and interviews with prominent voices across the finance industry alongside data on the state of economy.Visit the hub