The Economic Crime and Corporate Transparency Act 2023 (ECCTA) gained Royal Assent on 26 October 2023 and is the next stage of reforms aimed at tackling economic crime and preventing the abuse of UK corporate structures by money launderers, by improving the transparency of corporations and those behind them. The ECCTA will have an impact on all UK corporates, fundamentally changing the way they are formed and administered.
The first point to make, is because you are a small company, say one director & shareholder, or a husband & wife company, don’t think none of the new regulations apply to you. These regulations are a significant change, and as larger companies are generally more prepared than the smaller one, the smaller/micro companies are likely to feel the impact more.
The ECCTA will change the criminal liability for corporations and provisions on money laundering and crypto assets, together with an update on the introduction of a new corporate offence of ‘failing to prevent fraud’, a widening of the law governing the attribution of economic crimes to corporate bodies and the new money laundering provisions. All of this will put increased pressure on Company directors, and those who administrator the company secretary duties for companies.
Top line overview of the ECCTA impact:
- Companies House will have greater powers in tackling economic crime, with enforcement powers;
- There will be more transparency for entities registered at Companies House;
- Changes to the format of accounts that small and micro-entities will file (profit & loss will be in the public domain).
Although implementation of most of the changes will happen over time, companies should start familiarising themselves with the new regime as soon as possible. According to Companies House, new powers requiring additional detail to be recorded are likely to be in force in early 2024, which means that we are soon likely to see a much more pro-active approach from Companies House.
Key action points for companies
- Raise awareness – All directors need to be aware of the changes, as all directors will be responsible for implementation and following the new rules. Directors should be fully aware of these changes, as the implication of not being able to file ‘filleted’ or abridged accounts is clear. More sensitive disclosures including directors’ remuneration and tax disclosures will be brought into the public eye.
- Check your company register - At Harbour Key, hardly a month passes without encountering new clients whose Companies House records are either inaccurate or outdated. Given Companies House's expanded regulatory role, now equipped with greater enforcement powers than before, it's crucial to ensure that all filings are current and precise. It's advisable to promptly review and verify the accuracy of your filings.
- Check your Persons of Significant Control (“PSC”) – Are your PSC details correct and up to date. We find that although introduced in April 2016, many clients don’t really understand this notoriously complicated set of rules, which are going to increase under the new regulations.
- ID for Directors & Shareholders – Make sure you hold up to date valid ID for directors and shareholders, in preparation for when ID verification checks are introduced.
- Corporate Directors - It is expected that the rules around corporate directors will be tough, and it could be the case they will not be allowed, other than some very limited circumstances. Review group structures for companies with corporate directors and make a decision if the directors should be changed, or are there companies that could be closed, so as to remove some administrative burden.
We have highlighted below the key points & changes resulting from the legislation:
Companies House and the Registrar
The ECCTA will change the role of Companies House and the Registrar of Companies significantly: Companies House has historically been a passive information depository and the Registrar currently has limited powers to query the accuracy of information submitted to it or to flag and investigate suspicious activity.
The EECTA establishes clear objectives for the Registrar to promote the integrity of the public register and minimise unlawful activities. The Registrar will move from simply recording and providing access to the information submitted to it, to being an active gate-keeper and regulator, responsible for the reliability of the information collated by it, and will have new and enhanced investigative and enforcement powers in its arsenal to drive compliance. It will take an active role in law enforcement through its ability to share information with other public bodies.
Identity verification is a significant part of ECCTA. Its aim is to increase the transparency of individuals’ interests in UK corporates and decrease the opaqueness of corporate structures. Identity verification will apply to directors, all members of LLPs, PSCs and those who file documents at Companies House. Verification will be required when setting up a company, and then on any changes in directors and shareholders.
Identity verification will take place either directly via Companies House or by using an intermediary (such as a lawyer, accountant or formation agent) which has been authorised as an authorised corporate service provider.
Changes to company administration
A number of the changes to the administration of day-to-day company secretarial matters. Directors and company secretaries will need to familiarise themselves with the revised regime as sanctions for non-compliance (including a proposed power enabling the Registrar to levy a civil fine for non-compliance) are expected to be more regularly enforced by the newly empowered Registrar. Changes including:
- To deter the filing of information by unauthorised individuals, the ECCTA introduces restrictions on who can file information with Companies House. What happens now, with the Company sharing its Companies House filing code, will not be possible.
- Requirement that the full names of subscribers to be included on an application for incorporation and the full names of shareholders to be included in a company’s register of members. This is to be followed by a requirement to make a one-off disclosure of full shareholder information to Companies House with their first confirmation statement on the first anniversary of the company formation. (The Government is planning to use powers to tighten the disclosure requirements for companies claiming an exemption from the requirement to provide PSC details and for companies naming a relevant legal entity as a PSC).
- Directors - identity verification checks for all directors and making it an offence to act as a director (or for a company to permit a person to act as a director) without having a verified identity, or where the person’s appointment as a director is not notified to Companies House within 14 days; and widening the grounds for director disqualification. It is highly likely that corporate directors will not be allowed, with a limited exception for corporate directors that are entities with legal personality and have all natural directors who have had their identity verified.
- Registered offices for both existing and newly incorporated companies will need to be at an “appropriate” address, where a document delivered to the company would be expected to come to the attention of that company and where an acknowledgement of delivery can be obtained. The Government intends to give the Registrar the power to change a company’s registered office if it is not satisfied the relevant address is “appropriate”. Companies will be required to maintain and register with the Registrar an email address at which emails from the Registrar would be expected to come to the attention of the company. The email address will not be part of the public record and is intended to facilitate communications between the Registrar and companies.
- Registers - Abolition of the requirement for companies to maintain certain registers. Companies will no longer be obliged to maintain their own registers of directors and directors’ residential addresses, secretaries, and PSCs. This information will only be required to be filed and kept up to date at Companies House.
Financial information filing for smaller companies
Currently, small and micro entities have the option to submit 'filleted' accounts to Companies House. These accounts essentially consist of the full set of financial records excluding a directors' report and profit and loss account. This results in limited details being publicly available.
However, under the new regulations, small companies (including micro-entities) will be required to file both a balance sheet and a profit and loss account. Additionally, small companies (excluding micro-entities) will need to submit a directors' report. The ability to prepare abridged accounts will no longer be available. Companies opting for an audit exemption will need to specify the exemption relied upon and provide an appropriate directors' statement.
Register of overseas entities
The ECCTA (Economic Crime and Courts Transparency Amendments) introduces several changes to the Register of Overseas Entities regime, encompass various requirements. Overseas entities are now obligated to furnish property title numbers and additional details regarding trusts. Additionally, they must disclose alterations in beneficial ownership that transpired between February 28, 2022, and January 31, 2023. These amendments, detailed in our article about the regime HERE
Furthermore, the criteria defining a 'registrable beneficial owner' of an overseas entity have been broadened. If an overseas entity acts as a nominee for another individual regarding qualifying UK property, that individual (or, if they are a legal entity, the beneficial owner of said entity) will qualify as a 'registrable beneficial owner' of the overseas entity. Such individuals or entities will necessitate disclosure on the register a person (or if that other person is a legal entity, the beneficial owner of it) will qualify as a ‘registrable beneficial owner’ of the overseas entity and will need to be disclosed on the register.
The information provided above is just a glimpse of the changes that we anticipate will affect our clients at Harbour Key. More comprehensive details will follow, as we plan to announce further specifics at each stage of implementation.
Harbour Key has a significant number of client's registered at our offices with filing obligationswhich fall into the new regime. We are currently conducting an internal assessment of our services to thoses clients, to ensure compliance with new regulations. If you would like to discuss these changes, please feel free to reach out to our offices in the meantime.