On 26 October 2023, the Economic Crime and Corporate Transparency Act (ECCTA) received Royal Assent and became law. Although it’s implementation is taking place in stages, many changes are already in effect as of March 4, 2024.
The ECCTA aims to reduce economic crime, prevent abuse of UK corporate structures, and enhance corporate transparency through several reforms, including:
- Granting Companies House new powers to query, remove or reject information submitted to it, and more effective investigation and enforcement powers.
- Introducing more stringent identity verification requirements for company directors, persons with significant control (PSCs), officers of relevant legal entities (RLEs), and members of limited liability partnerships (LLPs).The Government’s hope is that these new identity verification processes will make it harder to register fictitious directors or beneficial owners.
This blog highlights the key changes the ECCTA introduced as well as their implications for UK companies, with a focus on compliance and practical steps for directors.
Key Changes and Requirements
Identity Verification Requirements
New, more stringent, identity verification procedures are mandatory for all directors, persons with significant control (PSCs), officers of relevant legal entities (RLEs), members of LLPs, and any other individuals involved in the company’s filing processes:
- All directors (newly appointed and existing directors) must verify their identity with Companies House (CH). one-time process unless there is a significant change, such as a change of name or suspicion of fraud. Existing directors will need to confirm their identity by the time they file their next confirmation statement.
- There will be two routes for identify verification: 1. verification with Companies House or 2. through an ‘authorised corporate service provider’ (ACSP). An ACSP is a body which is supervised for anti-money laundering purposes, and which have been authorised by Companies House to provide the verification service on behalf of its clients.
- The verification process is expected to use technology that matches the features between a primary identification document (like an ID, passport or driving licence) and a digital photograph or scan of an individual’s face.
- When registering a company, the identity of the proposed directors must be verified prior to incorporation.
- Companies must ensure that an individual does not act as a director until their identity has been verified. Directors and PSCs who do not verify their identity will commit a criminal offence and/or incur a civil penalty. Companies that have an unverified director will also commit an offence.
Notice Period of changes to Companies House (CH)
Directors must notify Companies House of any changes within 14 days. This includes the appointment or removal of directors, and any updates to their personal information (their name, date of birth, nationality, service or residential address, and country of residence). A director’s identity must also be verified prior to appointment to avoid legal complications. Failure to comply within this 14-day period is an offence, and continuing to act as a director without notifying CH can result in penalties.
Ban on Corporate Directors
The Act introduces a ban on corporate directors, allowing only natural persons to serve as directors. All corporate directors must thus be replaced with a ‘natural person’ for the company to remain compliant. Any such changes must be reflected as such in the company’s register of directors, and notice of these changes be given to the registrar. The only exception is if the corporate director is registered in the UK as a legal entity, and all of its directors are natural persons with verified identities. Where a corporate director is appointed as a director of a company and is not an exception under section 156B (requirement that each director be a natural person), that corporate director ceases to be a director of the company.
Consequences of Persistent Breaches
Directors who persistently breach filing obligations or fail to verify their identity can be disqualified. A person is also prohibited from being appointed as a director or PSC if they have been disqualified under the directors’ disqualification legislation. Furthermore, if a director is disqualified, any other directorships they hold will be voided. Furthermore, appointments of directors and PSCs (and subscribers, on incorporation) must include statements confirming that the proposed individual is not disqualified under the directors’ disqualification legislation.
Shareholder Requirements
There will be new obligations on shareholders to provide companies with personal information, including their full name and address. Companies will have the power to require this information and members must comply within one month. If any of the information changes, shareholders must notify the company within two months of the change occurring. A person who fails to comply “without reasonable excuse” commits a criminal offence.
Register of Members (shareholders)
All companies will be required to maintain their own register of all shareholders at the registered office address of the company. This register needs to list the full names and a service address of each owner (not just an initial and surname) and the company must provide this register to CH in a once-off statement in their first confirmation statement. Furthermore, private companies will no longer have the option to keep information about their members on the public register (CH will no longer host these).
Company Secretarial Changes effective as of 4th March 2024
There are several company secretarial changes that all companies need to be aware of:
- Registered Office Address Requirements
UK companies must have an “appropriate” registered office address, where during the ordinary course of business, documents sent to the registered office would come to a person acting on behalf of the company. P.O. Boxes are no longer allowed. If CH identifies an inappropriate address, it will change it to a default address held at CH. The company must then provide an appropriate address, with evidence of a link to that address, with 28 days. If this is not received, CH will start the process of striking the company off the register, leading to potential dissolution of the company.
- Registered Email Address
Companies have a statutory duty to maintain an appropriate email address in the same way as they do an appropriate registered office address. This is an email address that is maintained and where emails are sent to this address, it reaches a person acting on behalf of the company.
- Company Names
The ECCTA has broadened the restrictions on registered company names to include names which facilitate an offence of dishonesty, deception, or suggests a false or misleading connection with a foreign authority. A name that consists of, or includes, computer code is also not permitted.
Company Information
As of 4th March 2024, CH has the power to query or reject any filings, request further evidence, and remove material from the register. CH will also be able to enforce that all information is filed electronically.
False Statement Offences
The criminal offence of providing misleading, false, or deceptive information to CH also now apply where any person does this without reasonable excuse.
Accounts & Reports Requirements for Micro- and Small Entities
- Micro-entities will be required to file a balance sheet and a profit and loss account.
- Small companies will no longer be able to file abridged or filleted accounts.
- Small companies that do not meet the micro-entity threshold will be required to file annual accounts as well as a directors’ report.
- Companies relying on an audit exemption will need to state the exemption that they qualify for, and why they qualify, on their balance sheet.
- And, in due course, all companies will be required to use software programmes to file their accounts electronically.
Lawful Purpose
- When incorporating a new company, the shareholders need to confirm that they are incorporating the company for a lawful purpose.
- Companies with a confirmation date from 5th March 2024 onwards, also need to confirm that the intended activities of the company are lawful and submit this in their annual CS01 confirmation statement.
The Identification Doctrine
The ECCTA has broadened the scope of the identity doctrine (where criminal liability for economic crimes attaches to a corporate entity) to include senior managers acting within the scope of their authority. This will apply to all companies.
Action Points for Companies and SAIL clients
It is essential for companies to take proactive steps to ensure compliance with the ECCTA:
- Prepare for Identity Verification: Ensure all directors, PSC, and relevant officers have up-to-date identification documents ready for verification.
- All directors (newly appointed and existing directors) must verify their identity with Companies House (CH) either directly, or through an authorized service provider.
- A director’s identity must also be verified prior to appointment.
- When registering a company, the identity of the proposed directors must be verified prior to incorporation.
- Replace Corporate Directors: Replace all corporate directors with natural persons who have been verified.
- Timely Notifications: Directors must notify Companies House of any changes within 14 days. This includes the appointment or removal of directors, and any updates to their personal information.
- Compliance with Filing Requirements: Ensure that all directors are eligible to act and are not disqualified under the disqualification regime due to continued breaches.
- Update Registered Office Address: Verify that the registered office address is appropriate and not a P.O. box.
- Update Registered Email Address: Ensure that the Company has an appropriate registered email address and that it is being monitored.
- Maintain Accurate Records: Keep an up-to-date record of members at the registered office and report this to CH in a one-off statement which includes a list of all shareholders in the first confirmation statement.
- Shareholders will be required to provide their companies with personal information including full name and address. If any of the information changes, shareholders need to update a company within two months of the change occurring. Companies will have the power to require information and members must comply within one month.
- Check Registered Company Name: Ensure your company name meets the new registered company names obligations.
- Filing Updates: Ensure future accounts for small & micro entities are not abridged or filleted.
- Ensure you do not provide misleading, false, or deceptive information to CH.
- Confirm Lawful Purpose of your Company: Ensure the company states the lawful purpose of the company in its Confirmation Statement. This needs to be done annually, as well as upon the incorporation of the company.
- Implement Online Software: Start transitioning to software-only accounts filing.
The additional compliance burden introduced by these reforms will likely impact the speed at which changes to a company’s register can be made and may impact the timing of transactions. As a result, companies should work closely with their company secretary and legal advisers to ensure that all information held by Companies House is up to date, and that they stand ready to comply with the various reforms as and when they are implemented.
If you need assistance with any of these new requirements, please do not hesitate to contact us.