UK Government proposes Companies House reform and greater transparency of corporate entities

On 28 February 2022, the Government published its final position on Companies House reforms ahead of introducing legislation that will change the Registrar’s statutory role from being a largely passive recipient of information to an active gatekeeper over company creation and a custodian of more reliable data. This white paper provides detail on the way the reforms will operate and includes responses to three consultations run last winter. The Government hopes that the combination of legislative and operational reform of Companies House will allow it to play a greater role in tackling economic crime and safeguarding national security whilst meeting the demands of an increasingly digitally-based 21st century economy.

The Government has set out its position on corporate reform and register transparency following a number of consultations since September 2020. The proposals are intended to contribute towards government priorities in national security and anti-corruption, combatting fraud and boosting enterprise. We outline key features of the proposed reforms below.

Role and powers of the Registrar

It is proposed that the Registrar’s existing remit of registering company information is expanded to include a new function to promote and maintain the integrity of the register. The Registrar will be equipped with new powers to carry out this function.

New querying power

A new power is proposed which will allow the Registrar to query information either before it is placed on the register or post-registration, on a discretionary basis using a risk-based approach. All information supplied to the Registrar or information already on the register will be within scope of this power. Companies House will no longer be obliged to accept documents that are delivered if there is reason to question the information provided.

A range of sanctions for failure to respond to a query, or provide sufficient evidence in response, are also being considered.

It is anticipated that the Registrar’s new querying power may be used to question a company name in certain circumstances, for example where a proposed or registered name might form part of a campaign targeting a company with whom the applicant has no connection. Further new powers will see the Registrar being able to change the company name to its registered number if its directions are disregarded.

Other proposed changes to the Registrar’s powers include:

  • The expansion of powers to remove material which impacts on the integrity of the register.
  • Expanding the requirements for proper delivery so that further checks may be carried out before a filing is accepted.
  • The power to change the address of a company’s registered office where the Registrar is satisfied that the company is not authorised to use that address.

Identity verification and measures relating to directors, beneficial owners and agents

Digital identity service

Digital identity verification for those filing documents with Companies House is being developed to link a person with an authorised identity document. It is intended that all entities registered at Companies House will have at least one fully verified natural person directly associated with them on the public register.

Corporate directors

A company will not be permitted to act as a director unless it is registered in the UK, all directors of that company are natural persons and those natural person directors have been subject to the identity verification process. This will lift the shield of anonymity much earlier in the process. The Government also intends to clarify that corporate directors may only be appointed if they have legal personality.

Verification of third-party agents

The Government will require all third-party agents to be registered and supervised in the UK, so that they are subject to the UK anti-money laundering regime. The Government will have the power to allow third party agent registrations and filings from an overseas jurisdiction that is equivalent to that of the UK.

Improving transparency of company ownership

Companies will be required to record full names for shareholders in their registers. Private companies, and traded companies where shareholders hold at least 5% of the issued shares of any class of the company, will be required to provide a one-off full shareholder list. Changes will be updated annually when a company files a confirmation statement.

More information from companies claiming an exemption from the requirement to provide details of its PSC will be required, including:

  • the reason for the exemption;
  • if listed on a regulated market, the name of the market the company is listed on;
  • information that will direct searches to where PSC information is published;
  • the RLE conditions satisfied to be recorded as a PSC; and
  • if listed on a regulated market, the name of the market the RLE is listed on.

There will be a transition period for existing companies and other registerable entities to comply with the new identity verification requirements. Those who do not comply by the end of the period may face criminal sanctions and civil penalties.

Data sharing by Companies House

Power to share and cross-reference data

The Registrar will be given new powers to:

  • pass on information to law enforcement and other public and regulatory bodies when specified conditions are met; and
  • cross-reference data with external data sets held by public and some private bodies.

Increased discrepancy reporting

Under the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, regulated professionals such as financial institutions must report any discrepancies they identify between information they hold on beneficial owners of companies and that held by Companies House about PSCs. These requirements will be extended to cover discrepancies in director information and in registered office addresses.

Privacy and abuse of personal information

The Government will introduce a process to protect names or, in the most serious cases, to protect all the ‘required particulars’ from being displayed on the public register where an applicant produces evidence to show that an individual is personally at risk of harm. Signatures, day of dates of birth, residential addresses, ‘sensitive’ addresses and directors’ business occupations will also be protected. To ensure the process is not open to abuse, new routes to access certain suppressed personal information will be introduced. The Registrar will have flexibility and discretion to suppress personal information which is not covered by these proposals to ensure that it can act in an agile way if necessary in the future.

Once the proposals to increase the protection of personal information are implemented, 20 years’ worth of dissolved company records will be freely available online.

Improving financial information on the register

As well as enhanced validation checks on financial information delivered to Companies House and the requirement for company accounts to be filed using an industry-standard digital format (iXBRL), the Government plans to remove the option to file “abridged” and “filleted” accounts for small and micro-entities. This means small companies will be required to file all the constituent parts of their accounts and director’s report (unless meeting micro-entity thresholds).

Comment and next steps

These proposed reforms seek to make Companies House fit for the future and it is intended that they complement a number of related measures which will be introduced in the coming months to tackle economic crime in the UK.

These include, in light of Russia’s invasion of Ukraine, the Economic Crime (Transparency and Enforcement) Bill, which passed the Commons on 7 March 2022. This new legislation will expand the use of unexplained wealth orders and introduce a Register of Overseas Entities which will apply retrospectively to property bought by overseas owners up to 20 years ago in England and Wales and since December 2014 in Scotland. It will be held by Companies House with support from the UK’s Land Registries. Further detail can be found on this in our piece UK Government endorses transparency of overseas real estate ownership.

A further Economic Crime Bill to clamp down on illicit finance and improve corporate transparency is also planned, which will include:

  • new powers to seize crypto assets and bring them within scope of civil forfeiture powers to tackle the growing threat from ransomware and the use of crypto assets for money laundering;
  • strengthened anti-money laundering powers to give businesses more confidence to share information on suspected money laundering and other economic crime; and
  • reforms to bear down on the use of limited partnerships as vehicles for facilitating international money laundering and illegal arms movements.

The success of the Companies House reform proposals will therefore ultimately need to be assessed in the context of the Government’s wider package of reforms. At the same time, although items like increased transparency regarding company’s shareholder registers and increased protection against bogus incorporations will generally be welcomed, it will only be able to assess the practical implications of the Registrar’s new querying powers once the new regime is up and running.

At this stage, no clear timetable for legislation to be introduced has been proposed, the Government simply stating that this will follow when parliamentary time allows.

 

Authored by Jonathan Russell, Claire Macpherson, and Tamsin Dow.

 

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