Royal Assent for Economic Crime and Corporate Transparency Act 2023

At a Glance

• The ECCTA establishes reforms for Companies House; assists in preventing the abuse of limited partnerships; allows businesses to share information to prevent and reduce economic crimes; and creates more roadblocks for those who would otherwise abuse the UK’s financial system and businesses.
• While the ECCTA has formally passed into law, implementation could take place over the next year or longer. The Faegre Drinker team will follow these developments.

On 26 October 2023, the Economic Crime and Corporate Transparency Act (ECCTA) received Royal Assent and became law. The ECCTA aims to tackle economic crime and improve corporate transparency through several reforms, including:

1. Granting Companies House new powers to query, remove or reject information submitted to it, and more effective investigation and enforcement powers
2. Introducing identity verification requirements for company directors, persons with significant control (PSCs) and members of limited liability partnerships (LLPs)
3. Introducing a new strict liability ‘failure to prevent fraud’ offence for large corporates

Although the ECCTA has now passed into law, its implementation will take place over the next year or so. The UK government will release more details on the implementation timetable in due course. 

In this alert, we set out the main changes the ECCTA will make to UK company law and what they mean for UK companies.

Enhanced powers for Companies House 

Under the new provisions inserted into the Companies Act 2006 by the ECCTA, Companies House will transform from a passive recipient of information to a more active gatekeeper over the creation of companies, and a custodian of more reliable data. In particular, Companies House will be given new powers to query, remove or reject information submitted to it (or information already held on a company’s register), and the ability to request further information where there are inconsistencies or concerns about the integrity of new or existing information. 

Companies House will also be empowered to:

• Require that all information be filed electronically
• Share information proactively with law enforcement bodies where there is evidence of anomalous filings or suspicious behaviour
• Challenge registered company names where the name (i) could facilitate certain crimes, (ii) suggests a false connection with a foreign government or international organisation or (iii) contains computer code

Identity verification and non-disqualification declarations 

All new and existing company directors, PSCs, members of LLPs, and anyone filing information with Companies House must verify their identity. There will be two routes for identify verification: (1) direct verification with Companies House or (2) indirect verification through an ‘authorised corporate service provider’ (ACSP). An ACSP is a body which is supervised for anti-money laundering purposes (which includes credit institutions, financial institutions, auditors, insolvency practitioners and independent legal advisors) and which has been authorised by Companies House to provide the indirect verification service on behalf of its clients.

The verification process is expected to use technology that matches the likeness between a primary identification document (such as a passport or driving licence) and a digital photograph or scan of an individual’s face.

Companies must ensure that an individual does not act as a director until their identity has been verified. Directors and PSCs who do not verify their identity will commit a criminal offence and/or incur a civil penalty. Companies that have an unverified director will also commit an offence.

Appointments of directors and PSCs (and subscribers, on incorporation) must include statements confirming that the proposed registrable persons are not disqualified under directors’ disqualification legislation.

Accounts requirements for small and micro companies

All small companies and micro entities will be required to file profit and loss accounts. Small companies will also be required to file their directors’ reports, and companies relying on an audit exemption will need to state the particular exemption that they qualify for, and why they qualify, on their balance sheet.

Company registers 

All companies will be required to maintain their own register of members. Private companies will no longer have the option to keep information about their members on the public register. Companies will also need to enter the full names of members (not just an initial and surname) in their register of members and must deliver a full list of shareholders with their first confirmation statement.

Companies will no longer be required to maintain local registers of directors, directors’ residential addresses, secretaries, and PSCs.

Registered office and email address requirements

A company's registered office must be located at an ‘appropriate address’ — a location at which a document addressed and delivered to the company by hand or by post would be expected to come to the attention of a person acting on behalf of the company, and where the delivery of documents is capable of being recorded by obtaining an acknowledgement of delivery.

All companies must provide Companies House with an email address to which Companies House can send communications and expect them to come to the attention of a person acting on behalf of the company.

Incorporation and annual confirmation statements

When incorporating a new company, the subscribers must include a statement that the company is being formed for a lawful purpose. A company’s annual return must also include a statement that the company’s future activities will be lawful.

New ‘failure to prevent fraud’ offence

A large organisation will be liable under this new offence if it fails to prevent a specified fraud offence from being committed by its employee or agent, regardless of whether the organisation was aware of the misconduct, provided the fraud was intended to benefit the organisation or a person to whom services are provided on behalf of the organisation. There is a defence for organisations that have adequate fraud prevention procedures in place. For more information on the specified fraud offences and the organisations that will fall within scope, please read our alert here.

Looking ahead

Many of the reforms introduced by the ECCTA will be implemented through as-yet unpublished secondary legislation and will come into effect at a later date to allow companies time to prepare. Reforms likely to be implemented in early 2024 include the new powers granted to Companies House, the registered office and email address requirements, and the requirement for companies to submit a lawful purpose statement.

The additional compliance burden introduced by these reforms will likely impact the speed at which changes to a company’s register can be made and may impact the timing of transactions. As a result, companies should work closely with their company secretary (if appointed) and legal advisers to ensure that all information held by Companies House is up to date, and that they stand ready to comply with the various reforms as and when they are implemented.