Corporate transparency and registry reform

With its Corporate transparency and registry reform consultation now completed, the government is looking at making significant changes to how Companies House operates in maintaining the UK’s register of companies.

The changes under the Corporate transparency and registry reform consultation aim to make it easier to identify those behind companies and to deter the misuse of UK registered corporate entities for money laundering and other financial crime activities by enhancing the accuracy of the information held at Companies House.

Identification of directors, PSCs, presenters and agents

Under the planned reform, the identities of those controlling registered companies and similar corporate entities will need to be verified  so that people can have confidence on who they are dealing with and help trace people who are committing fraud and money laundering.  This means that the following will all need their identity verified:

• directors of UK registered companies;
• designated members of limited liability partnerships (LLPs);
• general partners of limited partnerships (LPs); and
• persons with significant control (PSCs).

Originally the plan was to also verify the identity of shareholders, even if they are neither PSCs nor directors. However, following the consultation the government has decided that it is sufficient to verify the identity of all directors and all PSCs as these are the people that control the company.

For directors, LLP members and LP general partners their identity will need to be verified  before the appointment is valid.  This includes those being appointed on incorporations.  Once the identity has been verified Companies House will inform the person and the company of the date that the appointment is effective.  This is similar to how such appointments are done for firms regulated by the Financial Conduct Authority (FCA), where the FCA needs to approve the appointment first.  Any director, LLP member or LP general partner appointed by the company, LLP or LP respectively whose identity has not been verified to the satisfaction of Companies House will be invalid. In addition, the company and the officer will potentially be subject to sanctions.

Compulsory identity verification to be introduced to help trace people who are committing fraud or money laundering

Whilst the verification of the identity of PSCs is also to be compulsory this will only be done after the person has become a PSC and will be a legal requirement on the PSC and not the company.  The only time when this will be before the person is a PSC will be on incorporation as all directors, LLP members, LP general partners and PSCs will need to be verified before the incorporation is approved.  Given that the verification of PSCs will normally be after the person has become a PSC non-compliance will be subject to the existing PSC sanction regime.

Existing directors, LLP designated members, LP general partners and PSCs will all need to go through an identity verification process under transitional arrangements.  Non-compliance will, at the end of the transitional period, be subject to sanctions on both the individuals and the companies.

The verification will either be carried out by Companies House, with the majority to be done electronically, or by agents acting for the company or, for incorporations, the subscribers.  Companies House will not be carrying out any verification checks where an agent is making the submission to prevent the need for two lots of verification.  Where agents are doing the checks Companies House will require that:

• the identity of the agent has been verified by Companies House;
• the agent is regulated by a relevant UK AML regulator under the AML regulations; and
• the details of the identity checks carried out are confirmed to Companies House.

In addition to the above, anyone making a submission to Companies House on behalf of a company (ie a presenter) will need to have had their identity verified.

Once a person’s identity has been verified by Companies House that person will have an account with Companies House under which all their appointments, including PSCs, will be recorded.

Enhanced powers for Companies House

Currently Companies House only has limited powers to question, reject or remove identified factual errors in company submissions.  This means that a court order is often required to correct filings made in error, which is costly and time consuming for the company.  Companies House has limited powers as it is strictly just a repository for receiving validly filed submissions and is currently not empowered to review the veracity of the submissions.

This means that the information held at Companies House for some companies may be wrong or unclear as a result of incorrect submissions. To overcome this, under the consultation the government plans to give Companies House the powers to:

• question and reject company submissions, including accounts and company formations, at its discretion; and
• amend or remove information submitted where it is found to be inaccurate.

The government also plans to amend the rules around filing of company accounts to:

• only allow the accounting reference date to be shortened once in every five years, other than for exceptional reasons (including, for example, aligning with a parent or subsidiary undertaking);
• amend the criteria for when micro entity or dormant company accounts can be filed;
• require details of how the conditions are met to file micro entity accounts;
• require electronic submission of all accounts using iXBRL tagging as adopted internationally as this allows the accounts to be read in person and by computers.

Changes are also planned so that where a company is claiming an exemption from keeping its own register of PSCs that more information is obtained to support the claim – eg details of the regulated exchange that the company’s shares are traded on / listed.

These changes are planned with the aim of improving the accuracy of the company information held at Companies House.

Protecting personal information

The government plans to make it easier for people to have personal information removed from the public register. This includes:

• Signatures;
• Dates of birth;
• Residential addresses; and
• Former names following a change of gender.

In addition, the requirement for directors to disclose their occupation is to be removed.

It is even more important now to allow people to remove as much personal information as possible from the public information held at Companies house given the easy and free access to this information.

Compliance, cross checking and other means to reduce the opportunities for the misuse of corporate entities

The government is concerned that there are instances where the information held at Companies House is being used to assist in the misuse of the corporate entity.  To try and reduce this the Corporate transparency and registry reform consultation includes plans to:

• Enhance the AML requirements by requiring AML regulated firms to report discrepancies between the public register of companies and the information they hold on their customers.
• Improve data sharing across government departments and carry out comparisons of datasets to identify discrepancies.
• Allow Companies House to apply to the courts to strike off limited partnerships in line with its powers for companies and LLPs.
• Give Companies House power to query and reject company names before they are registered or remove a company name once it has been registered specifically where they are too similar to existing company names, trading names or registered trademarks.
• Improve the certificates of good standing issued by Companies House so that it is clearer what these are confirming – ie confirmation of the details filed at Companies House and that filings due (eg annual confirmation statements) have been made.

Conclusion

The government’s current plans are set out in the government’s response in September 2020 to the Corporate transparency and registry reform consultation issued in May 2019.  These changes are currently only proposals subject to further consideration and consultation.  It is currently planned that the finalised rules will come into force sometime in 2023-2025, as detailed in Companies House’s five year strategy document.  This strategy document also mentions enabling electronic submission of all Companies House filings.