The Economic Crime and Corporate Transparency Bill (ECCT Bill) is a set of proposed legislative changes that will turn Companies House from a passive register into a more active gatekeeper. It grants new powers to the registrar to reject, query and demand information from companies and individuals. The changes constitute a major effort to ‘clean up’ the register of companies by enhancing its integrity and traceability. The Bill strengthens enforcement powers and facilitates cross-checking of information with public and private sector bodies.
For a November 2023 update written after the Bill became law, please see our article How will the ECCT Act impact companies?
Accountants who provide company formation and company secretarial services should be aware of the coming changes to Companies House. Inform Direct will be working with Companies House to respond to the practical implications of the Bill as they emerge. In this article we lay out what we know of the Bill’s effects on Companies House and its implications for the day-to-day running of companies. We also include some notes on the Register of Overseas Entities and the proposed reforms to limited partnerships, which are related measures aimed at tackling international fraud and money laundering.
Background: economic crime legislation since 2000
The ECCT Bill builds on a series of earlier legislative efforts aimed at tackling money laundering, organised crime, tax evasion and funding of terrorism. These include:
- Anti-Terrorism, Crime and Security Act 2001: gives law enforcement agencies new powers to freeze and seize terrorist funds and assets in response to the 9/11 attacks
- Proceeds of Crime Act 2002 (POCA): establishes a set of criminal offences related to money laundering and provides for proceeds of crime to be confiscated. Many of the provisions of the new Bill are amendments to the POCA.
- Criminal Finances Act 2017: gives law enforcement agencies more powers to seize the proceeds of crime and combat money laundering via the UK’s economy
- Sanctions and Anti-Money Laundering Act 2017: expands the UK’s ability to impose international sanctions and create its own sanctions framework rather than following the EU’s or UN’s models. Reinforces the UK’s abilities to investigate and prevent money laundering and terrorist financing
- Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA): sets up a register of overseas entities with interests in land in the UK and forces them to provide the identities of their beneficial owners. Targets money laundering and unexplained wealth in the form of UK property. Fast-tracked through Parliament in response to the Russian invasion of Ukraine with the aim of impeding the flow of Russian oligarchs’ money into and out of UK property.
The ECCT Bill will likely receive royal assent in the spring of 2023. Building on the above legislation, it is part of the government’s ongoing efforts to stamp out abuse of our open economy by foreign actors and organised criminals.
The principal provisions in the Bill are:
- Requiring identity verification of company directors and PSCs (People with Significant Control)
- New registrar’s powers to query, reject, and require company information
- Closing loopholes that facilitate the abuse of limited partnerships
- New police powers to enforce the register of overseas entities
- Reforms to encourage information-sharing between companies and the registrar to combat economic crime
Below we introduce each part of the Bill and summarise the proposed changes. Many points will be expanded upon and further clarified as more details emerge. There are also likely to be further amendments to the Bill as it passes through Parliament before becoming law.
The main changes in the Bill are:
- Responsibility to validate the identities of directors and Persons with Significant Control (PSCs).
- Elimination of specific mandated registers, like the director’s register.
- Need for more comprehensive shareholder details during filing.
- Limitations on eligibility for Director positions.
- Elimination of abridged financial statements for small businesses.
- Constraints on company addresses and names.
- Enhanced authorities granted to Companies House, enabling them to:
- Validate and decline data submitted by other public and private entities.
- Enforce monetary penalties for failure to adhere to Companies Act commitments.
- Mandate digital submission of information, including financial records.
- Prevent a company from reducing its accounting reference period.
- Decline or delete data if it seems suspicious, deceptive, or jeopardizes the register’s credibility.
The following is our understanding of the Bill at the time of publication of this article.
1: Companies House reform
The Bill aims to deliver ‘the biggest upgrade to Companies House in 170 years’.
Because Companies House is especially close to our hearts at Inform Direct, we will give more detail here on the section of the Bill that deals with changes at Companies House. In the period following the Bill’s enactment we will be circulating our understanding of how the registrar plans to implement the various changes.
Our technical team has an excellent track record in providing software adapted and optimised for the latest Companies House requirements.
Let’s dive straight into the proposed changes, starting with those that will most directly affect Companies House and how it deals with UK companies.
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Start nowCompany formation
Prior to incorporation, founding members must provide a statement that the company is being formed for lawful purposes. They must also provide a statement that the directors’ identities are verified and that they are not disqualified from being directors under the Company Directors’ Disqualification Act 1986.
PSCs’ identities must be verified and a statement given to that effect, and full first names of members are to be given, not just initials.
Company names
The registrar gains the power to intervene if a proposed company name is intended to facilitate deception. Company names that include computer code will be prohibited. This is for practical purposes, to prevent instances of code causing technical problems in the registry’s databases.
Business names
See company names above – the same restrictions apply to business names (‘trading as’ names).
Registered addresses
Registered addresses are to be two-way and appropriate, i.e. mail delivered there can be expected to come to the company’s attention and deliveries there can be acknowledged and recorded.
In addition to maintaining an appropriate registered address, companies have a new duty to maintain an appropriate registered email address. ‘Appropriate’ here means that when the registrar sends an email there it can be expected to come to the attention of a person acting on behalf of the company.
Directors
The Bill contains provisions to ensure that individuals disqualified as directors may not hold a directorship. An individual cannot act as director of a company unless their ID has been verified, and it becomes a criminal offence (punishable by fine) for someone to act as director without the company notifying Companies House within 14 days of the appointment.
Register of members
A full list of members (with full names) is to be delivered with the first confirmation statement after the Act comes into force. The Bill gives scope for future changes requiring the collection of more information on members, such as their addresses.
Courts gain expanded powers to order the rectification of incorrect information on registers of members. They are now allowed to order the correction of any information on members, not just names.
Removal of the option to use the central register of members. The registrar will no longer keep a central register of members and companies will be required to keep their own.
PSC register
Companies may no longer keep a local PSC register; it must be stored centrally at Companies House.
Accounts and reports
For fuller information please see our article on accounts changes following the ECCT Act.
Micro-entities will need to file a balance sheet, a profit and loss account and optionally a directors’ report. Currently micro-entities are only required to submit an abridged balance sheet and minimal accounts information.
Small companies that are not micro-entities will no longer have the option to file abridged accounts.
When requesting an exemption from audit, directors must deliver a statement confirming that the company qualifies for such an exemption.
Confirmation statements
Annual confirmation statements will have to contain an assertion that future intended activities are lawful.
Changes in principal business activities must be reported in the first confirmation statement if they occur between the application for incorporation and the actual incorporation date.
Identity verification
PSCs will be required to deliver statements to the registrar confirming that their identity has been verified. Non-human PSCs can provide verification of the identity of one of their officers, such as a director. Verification can be directly by the registrar or via an ACSP (authorised corporate service provider) under the scope of the 2017 Money Laundering Regulations. Corporate service providers must also verify their identity.
Restoration to the register
The registrar gains the power to strike from the register companies that are not carrying on business, and to restore them when all fines are settled and all necessary documents have been delivered.
Who may deliver documents
People delivering documents to the registrar must be authorised to do so and must verify their identity. Disqualified directors can’t deliver documents. Documents are only considered properly delivered when delivered by people authorised to do so.
Facilitating electronic delivery
The power to mandate electronic delivery of documents will rest with the registrar rather than the Secretary of State.
Reduction of share capital: a copy (presumably electronic) of a court order will be acceptable. It is no longer necessary to supply the original.
When supplying a declaration of solvency upon dissolving a company, a copy (presumably electronic) of this declaration is sufficient.
The registrar will gain the power to require that filings consisting of more than one document be filed together.
Promoting the integrity of the register
The registrar gains the power to reject documents inconsistent with information it already has, where that gives reasonable doubt as to their accuracy. But she will lose the power to make informal corrections of documents, as was previously possible with the consent of, and instructions from, the company or person who delivered the document.
The registrar can require information to determine whether someone has met requirements on document delivery.
The registrar can refrain from making information public about dissolved companies after twenty years.
The registrar can require information to resolve inconsistencies on the register. This can now include all information in its possession, not just information on the register.
Availability for inspection of the register
The Bill removes the right for applicants to request both hard and electronic copies of material on the register. It provides that certain dissolved company records between 10 and 20 years old be made publicly available. It also allows that company names wrongly registered or used for criminal purposes be removed from public inspection.
Registrar’s functions and fees
The Bill allows the registrar to analyse data for the purposes of preventing or detecting crime.
It also provides that the Secretary of State can review Companies House fees, considering the cost to Companies House of the measures in the Bill.
Information sharing and use
Disclosure to and by the registrar: the registrar may share information with anyone it sees fit for the purposes of exercising its functions. Likewise, anyone may share information with the registrar to assist it in exercising its functions. This includes information such as full date of birth and residential address. But it excludes data protection and HMRC information. The registrar may disclose information to individuals and public authorities
The registrar gains the power to prohibit companies from disclosing information about PSCs, a power which previously lay with the Secretary of State. Breach of this prohibition becomes a criminal offence. Breach of the prohibition of companies disclosing directors’ residential addresses is also escalated to a criminal offence.
General offences and enforcement
The Bill removes the need for someone to have ‘knowingly or recklessly’ delivered false material or documents for an offence to occur. The phrasing is changed to ‘without a reasonable excuse’. This matches the terminology used in Section 32 of the Economic Crime (Transparency and Enforcement) Act (ECTEA) 2022.
It paves the way for regulations to allow the registrar to impose civil fines of up to £10,000 in cases that would previously have been pursued through the criminal courts, where this seems a more appropriate use of resources.
2: Limited partnerships
The ECCT Bill aims to tighten registration requirements for limited partnerships and require them to maintain a connection to the UK. More information about partners will be sought. Many of the changes are amendments to the Limited Partnership Act 1907.
Required information about limited partnerships
New requirements for natural persons include name and former names of partners, date of birth, nationality, address and other contact details.
New requirements for legal entities (not natural persons) include name, principal office, service address, type of entity and nature of business.
Registered offices and email addresses
Partnerships must not only identify a principal place of business in the same UK jurisdiction as that in which they register (as previously), but keep this up to date rather than, as has been observed in some cases, quickly moving it out of the UK.
Partnerships must also provide and be contactable on an appropriate email address.
General partners
Matching the new rules for limited companies, partnerships will be required to confirm upon registration that none of their general partners are disqualified under the Company Directors’ Disqualification Act 1986. Any general partner who becomes disqualified after registration must be removed. General partners that are legal entities (not natural persons) must identify a proposed registered officer who can be contacted.
Changes in partnerships
The registrar must be notified within 14 days of any changes of partners or their details. She also gains the power to change a general partner’s service address if the one provided proves insufficient for communicating with them. She must be notified of changes to name, nature of business or principal place of business.
Annual confirmation statements are introduced for limited partnerships. They are already required from Scottish limited partnerships, but the Bill adds further information requirements.
Accounts
The Secretary of State gains the power to require accounts information from limited partnerships to be made available to HMRC upon request.
Dissolution, winding up and revival of limited partnerships
The registrar currently lacks the power to dissolve dormant limited partnerships. The following measures aim to rectify this.
A limited partnership can be declared dissolved if it no longer has a general or limited partner.
Any general partners remaining at the firm at dissolution must notify the registrar and wind up the firm properly.
In default of general partners, the limited partners must notify the registrar and appoint someone who is not a limited partner to wind up the firm. This is because any management activity on their part could lead a limited partner to lose their limited liability status.
The registrar can dissolve a limited partnership after issuing a warning and not having had a response in two months.
A procedure is put in place for applications to the registrar or the court to revive a struck-off partnership if certain conditions are met.
Register of limited partnerships
The Bill contains various changes to what information is made publicly available in the register of limited partnerships and what the registrar may disclose.
Delivery of documents
Applications for registration, notifications of changes and confirmation statements for limited partnerships must be submitted by ACSPs (authorised corporate service providers) who can demonstrate they are AML (Anti-Money Laundering) regulated via an appropriate body.
Offences are defined for submitting false, misleading or deceptive documents or statements to the registrar. Where such offences are committed by a legal entity (a company or firm), every managing officer of that entity is held accountable. There are two levels:
- Without reasonable excuse
- Aggravated (knowingly).
3: Register of overseas entities
The register of overseas entities (ROE) was introduced as part of the Economic Crime (Transparency and Enforcement) Act (ECTEA) in March 2022. The Act was fast tracked through Parliament in response to Russia’s invasion of Ukraine. The ROE’s goals are transparency of UK land ownership by overseas entities and being a deterrent to money laundering.
The ECCT Bill makes refinements to the ROE that make it consistent with changes in other parts of the Bill. It also makes ‘minor and technical changes’.
There will be an amendment to the ECTEA similarly to the ECCT Bill to include two criminal offences of failing to comply with a notice to provide information about an overseas entity:
- Without reasonable excuse
- Aggravated (knowingly).
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