The Economic Crime and Corporate Transparency Act (‘ECCTA’) became law on 26th October 2023. This is an important change in how businesses are managed and how economic crime is tackled in the UK. It builds on a previous law from 2022 that introduced a register for overseas companies. The new law will make big changes to the Companies House Register, helping to make businesses more accountable and improving transparency.
Key Changes Under the ECCTA
The ECCTA introduces several critical changes aimed at enhancing the integrity of the Companies House Register. Below are some of the primary reforms:
1. Enhanced Powers for Companies House
Companies House will no longer serve merely as a passive register but will take on a more active role in verifying and validating company information. This includes:
- Greater scrutiny over submitted information to prevent fraudulent filings.
- The power to challenge and reject documents deemed inaccurate or suspicious.
- Strengthened identity verification processes for company directors, Persons with Significant Control (‘PSCs’), and those filing information.
2. Identity Verification Requirements
A mandatory identity verification system will be introduced for:
- Directors and PSCs to ensure legitimacy.
- Individuals filing documents on behalf of companies, including agents and intermediaries.
- This move aims to deter fraudulent activity and improve accountability.
3. Greater Transparency in Company Structures
To reduce anonymity and illicit financial activities, companies will be required to provide more detailed information about their shareholders and beneficial owners. This includes:
- Full names and verified details of shareholders.
- Clear disclosure of beneficial ownership to prevent misuse of shell companies.
4. Stricter Controls on Company Names
New measures will be introduced to prevent the registration of misleading or inappropriate company names. The Registrar will have greater authority to reject or require changes to names deemed deceptive or linked to fraudulent activities.
5. Increased Data Sharing and Collaboration
To improve the effectiveness of enforcement, Companies House will have enhanced powers to share data with law enforcement agencies, regulators, and financial institutions. This will facilitate:
- The identification and prevention of economic crime.
- Improved due diligence processes for businesses and financial entities.
6. New Filing and Reporting Obligations
The reforms introduce additional requirements for companies to file more detailed and accurate financial records. This includes:
- Stricter reporting standards for small businesses and micro-entities.
- Enhanced monitoring of dormant companies who may be asked to provide additional evidence by way of a eligibility statement.
Implications for Businesses
The ECCTA reforms will have a significant impact on businesses, requiring them to take a proactive approach to compliance. Companies will face increased administrative responsibilities as they must adhere to new identity verification and reporting requirements. They will also need to carry out more thorough checks on their directors, shareholders, and key decision-makers to meet stricter due diligence obligations. Failure to comply with these new rules could result in serious penalties, including fines and potential legal action. With greater transparency, businesses will be under increased public scrutiny, making it essential for them to carefully manage their corporate structures and financial disclosures.
Conclusion
The Companies House reforms under the ECCTA represent a fundamental shift in corporate regulation in the UK, aiming to enhance transparency, combat economic crime, and improve the reliability of corporate data. Businesses must prepare for these changes by reviewing their governance structures, ensuring compliance with new verification processes, and staying informed about further developments in corporate law. While the reforms introduce additional compliance requirements, they ultimately serve to strengthen the integrity and trustworthiness of the UK’s business environment.
For more information or for expert advice on business or personal legal issues, contact us by email us at www.carterbond.co.uk or call us on 020 3475 6751.
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