Business man

Publish date

8 October 2020

Government Publishes Proposed Reforms on Corporate Transparency: Identity Verification

Last month, the Government published its response to a consultation process initially undertaken in 2019 as part of its plan to enhance the role of Companies House and increase the transparency of UK corporate entities.

A full copy of the response can be found here:

In particular, the consultation focused on additional information being required concerning people registering, running and owning corporate bodies. The Government’s response noted that transparency promotes an effective business environment and highlights the accountability those controlling a corporate body owe to society; providing assurance as to the identity of the key players involved in a business transaction.

Of particular interest, the Government’s response focused on the key area of identity verification.

The Government indicated it shall introduce compulsory identity verification for the following individuals:

  • Directors (this applies to both new and existing directors)
  • People with Significant Control (PSC) of UK registered companies
  • Individuals who present information on behalf of a corporate entity

Should directors and PSCs fail to confirm their identity, they could face criminal sanctions for non-compliance. Individuals who present information on behalf of a corporate entity and who fail to confirm their identity may face the filing being rejected by Companies House.

Generally speaking, compulsory identification is not required for shareholders of UK registered companies. Within the Government’s response to the consultation it specifically notes that they received mixed responses to the proposals on this subject, with many pointing out a potentially disproportionate burden on individuals without any controlling interest in a UK company. As a result, the Government has decided not to proceed with compulsory identification for all shareholders at this point in time.

In addition, the Government confirmed that it shall continue to allow company incorporations and filings to be made either directly at Companies House or via an agent provided they are properly supervised; agents will be required to provide evidence of the verification they have undertaken. Verification would be carried out under a digital verification process which may involve cross-checks with the UK Passport Office and Driver and Vehicle Licensing Agency and there will also be a non-digital alternative. The verification procedure would not, however, replace the existing anti-money laundering and customer due diligence checks. The Government has also confirmed in its report that it will avoid duplicating identity checks.

The main intention behind the Government’s reforms is to promote trust within commercial transactions; investors, business people and society need to have confidence that they know who they are dealing with to help determine and complete transactions. Commenting on the proposed reforms, Lord Callanan (Minister for Climate Change and Corporate Responsibility) noted that “The reforms will support my ambition of making the UK the best place in the world to start and grow a business. The reforms will bring many benefits to businesses through streamlined and digitised processes and an improved user experience, reflecting the needs of business in the 21st century economy. The impact on overall speed of incorporation and other filings will be negligible: we still expect the vast majority of companies to be able to incorporate easily within 24 hours. Costs will remain low by international standards. Where more information is being sought from companies, for example for identity verification, technological solutions will ensure that additional burdens on business and individuals are kept to a minimum.”

The Government expects to have finalised the system design and to start user testing by the end of the 2020/2021 financial year.

Our view at Thomson Snell & Passmore is that whilst these additional checks may be somewhat burdensome at first, in time, they are likely to become a “natural” element of the standard UK company registration process. As noted in the Government’s response, since the 1840s the requirement to register certain details about a UK company has been part of the quid pro quo for gaining the privileges of limited liability; and this new identity verification requirements is the Government’s attempt to balance this privilege with the need to promote transparency and accountability (and avoid fraud).

If you would like to discuss how these reforms will likely affect your business, please do feel free to get in touch with myself or another member of our highly-ranked Corporate and Commercial team.

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