What checks must be done to set up a company?

In July 2017 expanded regulations where released – the ‘4th money laundering and terrorist financing directive’ – which included regulations on forming companies.

Following the regulations’ implementation, anyone providing services to set up a company must complete a relevant level of ‘due diligence’ on the person (or company) that is creating the new company.

The regulations often mention that this due diligence applies to ‘regular’ transactions: however, HMRC in their guidance issued in early 2018 clarified that this doesn’t apply when incorporating a new company. Even someone forming one company is subject to these checks being run.

What are the Checks?

The checks that a company does as part of their due diligence may vary. The regulations require a risk based approach, depending on the perceived risk of a business transaction (in this case the formation of a company) and the person or company performing the transaction. Different checks maybe carried out and at different times.

• Due Diligence – this is the standard level of risk and requires as a minimum that the person carrying out the transaction has their identity verified and are checked for any high risk factors (e.g. they are a politically exposed person or ‘PEP’).
• Simplified Due Diligence – where a transaction is assessed as low risk, which could be that you are dealing with someone face to face and their transaction is low risk, you can carry out a smaller set of checks, and not immediately, if that would interrupt the flow of business.
• Enhanced Due Diligence – this is where a transaction is identified as High Risk: this could be because the transaction is to/from a country identified as a high-risk country for the purposes of money laundering and terrorist financing.

What checks are completed, and how, is up to the service provider and their risk assessment of the activity and transaction occurring, but it usually it amounts to:

• Something to confirm an identity and check watchlists (Sanctions, PEPs etc.) – name, address, data of birth.
• Something to confirm the identity is your identity – passport, driving licence, a face to face meeting.

What if I am an agent for an incorporation?

If you are acting as an agent for an incorporation (often accountants or solicitors), then you are performing your own anti-money laundering (‘AML’) checks on your customers and are regulated for these purposes by a governing body. Therefore, to use a service such as ours to incorporate companies, a one off check must be done on your company which, once completed successfully, will enable you to form companies with no further checking from us each time.

Could I fail the checks?

A minority of people may not pass the checks. This could signify a real issue i.e. false documents have been submitted, but it is also possible that you do not pass because your identity couldn’t be confirmed electronically.

Most identity checks use an online service to electronically verify a person’s identity. Industry standard is that your name, date of birth and residential address must get at least two matches from data that the identity checking companies hold on individuals. This is usually sourced primarily from credit information, but also other data sources such as electoral and Companies House registers.

For more information about the AML checks that we run as part of our company formation process, please see our article on Inform Direct’s anti-money laundering checks.