Companies House handed world-leading new powers to clamp down on economic crime

After receiving Royal Assent on 26 October 2023, the Economic Crime and Corporate Transparency Act 2023 (“the Act” or “the 2023 Act”) is set to complement the Economic Crime (Transparency and Enforcement) Act 2022 (“the 2022 Act”) with the introduction of several new measures. Amongst other things, most notably, the 2022 Act established the Register of Overseas Entities, giving wide powers to Companies House to obtain information on overseas entities that own UK property and their beneficial owners.

The 2023 Act, which provides further powers to Companies House forms ‘the biggest shakeup to the service in its 180-year history’, introducing ‘world-leading’ powers which will allow UK authorities to clamp down further on economic crime.

As we stand today, preparations are underway to implement these changes on or after 4 March 2024, although this is subject to finalisation and confirmation of transition periods. These will be announced to ensure a smooth and manageable process of adaptation for companies.

Part 1 of the Act: Companies House Reforms - An historic upgrade

The first part of the Act outlines how Companies House will transform into an 'active gatekeeper' of corporate information, aligning with its new statutory objective to ensure the integrity of its register. This involves the following key developments:  

• Enhanced scrutiny over submitted information, including the power to reject documents with inconsistencies;
• New investigative powers, which can be found in a GOV factsheet; and
• A new role of analysis of information held by Companies House for the purposes of preventing or detecting crime.

The Act also introduces mandatory identification requirements for all directors, persons with significant control (“PSC”), and document filers. The verification will be able to be done directly through Companies House or indirectly via an authorised corporate service provider. In introducing this measure, efforts will be made to prevent the appointment of fictitious (‘front’ or ‘straw men’) directors. A 2022 impact statement estimated that between 5.7 million and 8.8 million individuals would need to verify their identity under this measure.

Further measures to be introduced to aid Companies House as part of Part 1 of the Act are briefly summarised below:

• Registered office address: Companies must have a registered office address where physical documents can be reliably delivered and received by someone acting on behalf of the company. PO box addresses will not be acceptable.
• Registered email address: Companies are required to provide a valid email address at the time of incorporation or at their first confirmation statement after the new rules apply. This email should be one where communications from Companies House are likely to be noticed and addressed by someone from the company.
• Director disqualification: Individuals who are disqualified under the directors disqualification legislation, such as those subject to bankruptcy restriction orders, are prohibited from acting as directors in any company.
• Abolition of certain registers: Companies no longer need to maintain their own registers of directors, directors' residential addresses, secretaries, or PSC. The only register companies need to maintain is the register of members.
• One-off membership information: Companies are required to submit detailed information about their members, including full names, in a one-off membership statement along with their confirmation statement. This applies to all existing companies, with an additional requirement for traded companies to include details of members holding at least 5% of any class of shares.
• Micro-entities filing accounts: Micro-entities, which were previously exempt, will be required to file annual accounts.
• False statement offences: New offences include delivering a document or making a statement to Companies House that is materially misleading, false, or deceptive without a reasonable excuse. 

Part 2: Limited Partnerships (“LPs”) Reforms

The Act revises the framework for LPs, focusing on:

• Enhanced registration and transparency requirements.
• A streamlined process for the dissolution of LPs and removal from the register.

Part 3: New Measures for Organisational Accountability in Economic Crimes

The Act introduces two significant measures to strengthen accountability for economic crimes:

1. A new 'failure to prevent fraud' offence, imposing strict liability on organisations if an associated person commits fraud to benefit the organisation or its clients.
2. A reform in the identification doctrine for economic crimes, expanding the scope to cover senior managers and aligning with modern corporate structures.

These changes, which have been anticipated for some time, promise to bring enhanced clarity and robustness to our operations and compliance frameworks.

It’s important to note that, in this briefing, Part 1 of the Act is explained in greater detail due to the nature of our client base. If you feel that you would be more affected by the other parts of the Act, please get in touch with one of the team at Sanctoras, and we can provide some further guidance on these areas.

Next steps

We recognise the need for the following actions to take in light of the new legislation:

• Understanding the new Role of Companies House: Grasping the implications of Companies House becoming an 'active gatekeeper'. Preparing for enhanced scrutiny and the power of Companies House to reject documents with inconsistencies.
• Mandatory Identification Requirements: Compliance with new identity verification processes for directors, PSC, and document filers. Prevention of the appointment of fictitious directors.
• Registered Office and Email Address Requirements: Ensuring a valid physical office address and email address are provided, and understanding the implications of these requirements.
• Director Disqualification Compliance: Ensuring awareness of the implications of director disqualification, and bankruptcy restriction orders.
• Abolition of Certain Registers and One-Off Membership Information: Adapting to the register of members maintenance requirements, including submission of one-off membership statements.
• Filing Requirements for Micro-Entities: Navigating the new filing obligations for micro-entities.
• Prevention of False Statement Offences: Understanding the new offences related to misleading, false, or deceptive documents or statements.
• Reforms to LPs: Adapting to enhanced registration and transparency requirements for LPs. 
• Organisational Accountability in Economic Crimes: Preparing for the 'failure to prevent fraud' offence, and adapting to the expanded scope of identification doctrine for economic crimes.
• Staggered Implementation of the Act: Close monitoring of the phased implementation of the Act’s provisions. Ensuring ongoing compliance with evolving legislative changes.

Be aware that strategies for the implementation of the Act are not static; they will incrementally adapt to ongoing legislative changes. Our commitment to continuous monitoring and adaptation is fundamental to helping our clients navigate the complexities of this regulatory landscape with confidence and clarity.

At Sanctoras, our primary role is to provide guidance tailored to the individual needs of our clients. We recognise that all companies will need to pay attention to the new changes, but that each client's situation is distinct.

Should you wish to engage us to provide personalised advice to address the specific challenges and opportunities presented to your business by the Act, please contact Ed Maycock via hello@sanctoras.com