The Government has published a White Paper on Corporate transparency and register reforms which sets out plans to tackle global economic crime and improve corporate transparency. The reforms will broaden the role of Companies House, which will change from being a largely passive recipient of information to a much more active gatekeeper over company creation and custodian of more reliable data.
The reforms are being introduced to tackle abuse of UK registered companies and partnerships by international money laundering networks and protect individuals and businesses from fraud. However, the changes will necessarily impact most UK companies, partnerships and users of Companies House.
The changes aim to reduce the fraud and abuse of UK companies and partnerships by adding extra layers of verification and investigation, with the central outcome of the reforms being a significant increase in the reliability and accuracy of information on the Register.
In addition the Government has also published the 'Register of Overseas Entities Bill' in which Companies House will maintain a Register of Overseas Entities that own land in the UK. The details to be filed here are similar to the 'persons with significant control' register for shares in companies, which Companies House had maintained since June 2016.
The changes proposed
Identity verification
The most significant change is the introduction of mandatory identity verification for those incorporating and filing with Companies House.
All new and existing company directors, persons with significant control (PSCs), members of LLPs and anyone else submitting filings will need a verified account at Companies House. The verification will require a photograph which will need to match an identifying document. Once verified, users will have one account that will be able to access all Companies House services.
A director who has not registered at Companies House by the end of the required period will be committing an offence and may face a civil penalty. The public register will also show the failure to verify. Furthermore, a company that is directed by an unverified director will also commit an offence.
New discretionary power to raise queries and change or remove information
Companies House will be given a new power to reject and query new filings, as well as query information that is already on the register. Pre-registration, the new power will mean that Companies House can reject documents where there is a reason to query the information provided, giving the applicant an opportunity to re-file once the query has been addressed. If the query is not appropriately addressed the filing will continue to be rejected. Post-registration, when a query is raised, the entity will have 14 days to respond and provide evidence to support the response. If a query fails to elicit a response, or the response is not satisfactory, sanctions may be imposed.
Companies House will also be given discretionary powers to remove material which impacts on the integrity of the register. The paper does note that some material has legal consequence once filed and that removal of such material will remain a matter for the court. The new querying power may also be used to query company names on a risk-based approach, where a proposed or registered name may be part of a campaign to target a company.
Corporate directors
The future of corporate directors has been under discussion for a while. The reforms look to retain the ability to appoint corporate directors provided that (1) all directors of the corporate director are themselves natural persons; and (2) those natural persons are, prior to the corporate director appointment, subject to an appropriate identity verification process. Corporate directorships will also be restricted to entities registered in the UK.
Transparency of ownership
There will be new requirements for (1) companies to record full names of shareholders in their register; and (2) private and certain traded companies to provide a one-off full shareholder list, with any changes required to be updated annually on the confirmation statement. There will also be an obligation to collect and display more information from companies claiming an exemption from the requirement to provide details of its PSCs.
Enhanced data sharing powers will enable the Registrar of Companies to proactively pass on relevant information to law enforcement and other regulatory bodies, when specified conditions apply. It is envisaged that this will mostly relate to investigations into economic crime.
Improved financial information
The filing requirements for small and micro companies will be simplified, with all small companies being required to file all the constituent parts of their accounts. All company accounts will be filed in a digital format, using the industry standard Inline Extensible Business Reporting Language, with all information fully tagged.
Register of Overseas Entities Bill
The Bill was proposed about five years ago, and the Government has now taken steps to push the Bill through. In short overseas legal entities (such as companies) will not be able to register as the owner of land in the UK unless it has first registered its beneficial owner details with Companies House and it will then have to update that information annually. In addition, subject to certain exceptions, an overseas entity will not be able to sell, lease (for more than seven years) or mortgage its land unless it has complied with its beneficial owner registration and updating obligations. The changes will impact new acquisitions and there are transitional provisions for existing companies caught within the regime.
These changes have been long awaited, and represent a significant change to the way Companies House operates and to how companies will need to be administered. No timetable for implementation has been issued but they will be introduced as part of the Economic Crime Bill in the coming months.
If you would like to discuss these changes and how they will impact your business please contact Sharon Ayres or your usual Gowling WLG contact.