New Companies House identification verification requirements for Directors and PSCs – Economic Crime and Corporate Transparency Bill (“ECCTB”)

The Economic Crime (Transparency and Enforcement) Act 2022 introduced a registration regime for overseas entities owning property in the UK requiring details of the entity to be filed at Companies House. The Government has now got its sights on company directors and is set to introduce legalisation that will require identity verification for all new and existing directors.

The ECCTB focuses on preventing individuals and entities from abusing the UK’s financial systems by increasing transparency and bringing in reforms to: (i) encourage businesses to share information to assist in tackling financial crimes; (ii) further prevent the abuse of limited partnerships; and (iii) improve the accuracy of the information held at Companies House.

The current system for registering details of directors of companies relies on the good faith of those incorporating companies and recording changes to the composition of their board, as Companies House does not carry out any checks. This relatively relaxed approach leaves the door open for abuse as was highlighted last year when questions were raised in the House of Lords about a company (since dissolved) called “MI5ER SCR00GE Spypriest The Great and Terrible Limited” which listed among its directors James Bond and Judas Superadio Iskariot.

In an effort to stamp out such malpractice and make it harder to register companies with fictious directors or beneficial owners, the ECCTB will introduce new identity verification requirements.

Identity Verification – how it will work

The reforms include the introduction of identity verification for: (i) all new and existing directors; (ii) persons and entities with significant control; and (iii) individuals delivering documents, or submitting information, to Companies House.

Identities will be verified either by Companies House directly or via an Authorised Corporate Service Provider (“ACSP”). Companies House will require the person undergoing verification to take a photograph and provide a primary identity document (driving licence or passport) which it will compare for likeness.

An ACSP, such as a firm of accountants or solicitors acting on behalf of applicants, will need to be authorised by the Registrar to submit documents on their behalf. To be authorised, an ACSP will need to be registered with a supervisory body for anti-money laundering purposes. ACSPs will carry out the same identification checks and declare as much when submitting data to Companies House. ACSPs will also be required to retain records to evidence their identity verification checks which Companies House may seek to inspect or request further information on.

We understand the verification process will take place before individuals or entities apply to Companies House to incorporate a new entity or appoint a new director. A failure to follow the verification process is likely to result in an offence being committed by both the company and the individual if the director continues to act as a director of that company.

The same is intended to apply to those individuals registered as persons with significant control (“PSC”) or as relevant legal entities (“RLE”), where the identity of the PSC will need to be verified before entered on the PSC Register, as will the registered officer of any RLE that has significant control.

Powers

The ECCTB also widens the Registrar’s powers to raise questions about new filings and review, verify and, if necessary, reject information on registered entities that has already been submitted and is currently shown on the public registers.

If investigations by the Registrar into suspicious activities justify escalation, Companies House is to be granted the discretion to pass its findings and evidence to the relevant law enforcement bodies to take any further action they deem necessary.

Such new powers are to reinforce the Registrar’s new emboldened role and ability to police the data submitted to it which, in turn, supports the ECCTB’s overall aim of increasing the reliability of the data it holds for greater transparency and accountability.

Implementation

It is not yet known when the ECCTB will come into force, nor is it clear when, and exactly how, the new verification process will be practically implemented by Companies House. However, it will be interesting to see how these new verification processes, and widened powers, are introduced in terms of: (i) the user’s new submission experience; (ii) what information the Registrar will be willing to query; and (iii) how, with the resources available to it, Companies House will start reviewing the vast amount of data it already holds.

Our Corporate team has considerable experience in advising businesses on their filing obligations at Companies House and their general corporate governance. Should you, or your business, require any assistance in this regard or, if you would like to find out more about the proposed changes introduced by the ECCTB, please do not hesitate to contact associate Henry Wright or any member of the Corporate Team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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