Companies House: Economic Crime and Corporate Transparency Bill

Article written Jessica R. Dhodakia

New reforms to the role of the Companies House and Limited Partnerships may start to effect corporate practice.

The recent Economic Crime and Corporate Transparency (ECCT) bill is likely to effect corporate practices across law firms in the UK as reforms may be made to the central register. The Companies House and new forms of transparency may be imposed on UK companies.

In September 2022, the first reading of the ECCT Bill took place in the House of Commons, no more than nine months later the third reading in the House of Lord has passed. The bill is now at the report stage in the House of Lords which will be followed by the third reading and then the consideration of amendments and royal assent.

The ECCT Bill is a reform package aimed at preventing corruption in corporate structuring and tackling economic crime. More specifically, the bill aims to make new change to the role of the Companies House which is an agency that maintains the register of companies. The power of the Companies House will increase by allowing new powers to check, remove and decline certain information.

Companies House

While there are various reforms including crypto assets, economic crime, one key reform taking place is to the role of the Companies House. The Companies House has often be criticised as being a gateway for crime where people are fraudulently inputting information and abusing the system. The Guardian wrote piece in December 2022 titled ‘Fakers, fast signups and fraud: the crisis the UK’s Companies Houses’, highlighting cases where directors have been falsely appointed.

The Times published an article in January 2023, discussing how company formation agents were given a critical role in cleaning up the Companies House as part of the current campaign to decriminalise the Companies House.

Suella Braverman, Home Secretary, notes that the ‘Companies House framework has been manipulated, particularly with the use of anonymous or fraudulent shall companies and partnerships’. It is widely recognised not only by government but the wider public of the catastrophic situation the companies house is in as being a gateway to crime.

In addition, The Law Society has commented on the bill stating that the bill will ‘help to improve transparency over UK companies and strengthen our business environment.’

Broadening of Powers

Under the ECCT bill, a part of Companies House role is to become an effective gatekeeper against corruption and those who wish to abuse the central register, Companies House will be provides with additional powers to prevent abuse. Companies House will be able to check, remove and decline information that is inconsistent, inaccurate, or misleading and information that is already on the central register, allowing agents to crack down on wrong and false information that is too often added to the registrar.

Share information

A new power given to Companies House will be able to proactively disclose and share information with law enforcement under the ECCT bill. The bill intends  to ensure a better cross-checking of data by using the information stored on the Companies House when there is concern for false and fraudulent information or criminalise behaviour.

New Identify Verification

The ECCT bill has firstly introduced new identify verification process. The bill notes that all existing and new company directors, people with significant control, and those delivering the documents will need to conduct verification. The bill aims to improve the accuracy of all information given to Companies House by ensuring the legitimacy of every key member on the register. Such verification process will help with identifying those who are genuinely directors and those who are falsely and fraudulently using the register.

Limited Partnership

In addition, there will be reforms made to legal framework of limited partnerships (LPs) as the bill is also addressing the misuse of LPs. Such measures include tightening registration requirements, require limited partnerships to maintain a connection to the UK and for LPs to increase transparency. The Companies House will have the ability to deregister limited partnerships which are dissolved.

Conclusion

At this moment, the bill is being finalised and we do not know yet all the reforms that will be made to the Companies House and how the new identity verification process will work in practice. When working with clients who are setting up a company, or amending articles, or appointing new directors, solicitors may need to start operating under new guidelines set out under the ECCT.

The SRA has advised solicitor and notes that, ‘you may have an agreement with your client where you are deemed to be the corporate point of contact for the entity. We recommend you make your client aware of their new obligations.’ While the ECCT bill has not yet reached royal assent, it is likely the bill will affect current corporate practices.