United Kingdom: The Economic Crime and Corporate Transparency Act 2023

published on 23 February 2024 | reading time approx. 5 minutes

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) was given Royal Assent in October 2023. The ECCTA sets out a number of new offences and other details that will apply at some point that is yet to be announced, and we outline these in this article.

There are a few items that companies based in the UK will shortly have to respond to, and these are as follows:

If the company currently has a PO Box as its registered office address, by 4 March 2024, this must be changed into an actual postal address, and provided to the companies register in the UK (Companies House). This new address should also be included in the company’s next Confirmation Statement.
From 4 March 2024, on incorporation, and annually after that, a company will have to confirm that the company is being incorporated for a “lawful purpose”. A key aim of the ECCTA is to stop companies being used by criminals for illegal purposes, and this is what this new “lawful purpose” statement and annual confirmation is aimed at.
Both existing and new companies must, on incorporation or in the Confirmation Statement filed next after 4 March 2024, register an “appropriate” email address. This email address will not go on the public register, but is to be used solely by the Registrar at Companies House (Registrar), to communicate with the company. We would recommend that this email address is not tied to a named specified employee, although its inbox should be regularly checked and accessed.

The original Bill for the ECCTA was published with the intention of strengthening powers to tackle illicit finance and reduce economic crime by proposing a package of reforms for the Companies House register. Following concerns that the current framework of Companies House is too open to misuse, the purpose of the reforms is to improve the accuracy of the information published on the register of companies at Companies House (Register) and to strengthen the UK’s ability to combat economic crime.

The proposed reforms relate to:

Increasing the transparency required of corporate entities in the UK
Increasing the powers of the Registrar
Improving the quality and value of financial information published on Companies House
Implementing restrictions on corporate directors

Principal Reforms

Companies House will receive more powers which include, but are not limited to, scrutinising information to be submitted on the Register either pre- or post-registration, insisting on any informational documents to be delivered electronically, etc.
Introduction of identity verification measures for all directors and third-party agents, along with higher levels of scrutiny on shareholders, People with Significant Control (PSCs) and Relevant Legal Entities (RLEs) as well as restrictions imposed on corporate directors.
Increased privacy rights for private information, like suppressing private addresses or birth dates on the online Register.
Mandatory accounts filing in the electronic format, reduced options for how small companies can file their accounts as well as a mandatory eligibility statement from dormant companies.

Additionally, the introduction of these reforms will see a rise in the Companies House fees, although these are still expected to remain low by international standards.

Identity Verification

Identity verification was one of the main proposals put forward to prevent false or doctored information being submitted to Companies House. As information is generally submitted to Companies House digitally, Companies House will be provided with the power to link, correct or manage any pre-existing records as well as new ones.

All directors, PSCs, and third-party agents (e.g. solicitors, accountants, etc.) will be required to perform identity verification while incorporating and filing any information on Companies House. Since third-party agents are already required to carry out due diligence while filing incorporation documents, they will be asked to submit evidence of these, along with the identity checks they carried out, to enable Companies House to cross-reference this information.

Who will need to provide identity verification?

Directors – Companies House will require all directors to perform identity verification checks on the incorporation of a new company. Therefore, the appointment of a new director is conditional on the director being able to provide identity verification. However, it is important to note that this identity verification is also required for existing directors in active roles.
PSCs – Any persons with significant control will also be required to perform identity checks and the responsibility to do this will rest with them instead of company directors. As with directors, this will also apply to existing PSCs in active roles.
Shareholders – Generally, the publishing of shareholders’ personal details will be restricted, but Companies House will make it easier for individuals to view a consolidated list of all shareholders of a company.

Other reforms

Intelligence Hub

Companies House will be introducing a new “Intelligence Hub” which will vastly increase the detection of any fraudulent activity and will have the power to refuse any documentation, if there is a reason to query the information provided. The Registrar’s powers have also been proposed to be expanded to include removal of any information from the Register that would impact the integrity of the Register through the new querying power available to the Registrar.

Registered Address

The Registrar will have the discretionary power to change the registered office address of a company to a default address without any notice/application where the Registrar is satisfied that the company is not authorised to use the specified address or has become aware of evidence that the provided address does not exist. The default address is the Companies House address in Cardiff, Wales.

Company Names

If Companies House has raised a query relating to a company name and satisfactory evidence has not been submitted by the company regarding the query within the stated deadline, Companies House will have the power to direct companies to change their name.

Restrictions on corporate directors

A company will not be allowed to act as a corporate director unless a) all directors of the company seeking appointment are natural persons, and b) these natural person directors are subject to an identity verification process prior to their appointment. Moreover, corporate directors may only be appointed if they have legal personality (i.e. they are able to function in business like a natural person). Also, corporate directorships will be limited to entities registered in the UK.

Accounting Reference Period

Following the recommendation from the consultations to reduce the number of times a company can shorten their Accounting Reference Periods (ARPs), the government has responded by establishing that the cap to shorten their ARPs should be once every five years. Where a company intends to match its ARP with a parent or subsidiary, they will be required to provide information about the relevant entity to Companies House.

Data sharing by Companies House

The Registrar shall have power to share certain data sets with other bodies (especially public/regulatory bodies and law enforcement). It will also be able to request external data from certain organisations to cross-reference information provided by companies in their application and filing processes. This entails that it will have the power to cross-reference all public and non-public information it holds (subject to data protection laws).

Filing options for small companies

There will only be two options available to small companies; micro-entities’ accounts or small companies’ accounts. The options for abridged and “filleted” accounts will be removed. This will mean that their information on turnover and profit/loss will be available on the register. Small companies will be required to file all the constituent parts of their accounts. Small companies will also have to file a director’s report unless the company meets the micro-entity threshold.