What all businesses need to know about the Economic Crime And Corporate Transparency Act 2023

Faye Cook, Partner in our Corporate & Commercial team recently wrote the following article for Insider Media.

The Economic Crime and Corporate Transparency Act 2023 received Royal Assent on 26 October 2023.  It is the second part of a legislative package aimed at preventing the abuse of UK corporate structures and economic crime by improving the integrity of the information available about companies and other business entities. It brings in changes that all UK businesses need to be aware of and comply with. It is anticipated that the first set of changes will come into force from 4 March 2024, with the rest to follow in stages with the commencement dates yet to be announced.

What new powers does Companies House have?

Labelled as being the biggest change to Companies House since corporate registration was established, the Act provides the executive agency with greater powers. Companies House will now be able to question and reject filings, request more or remove information and share information with other government departments and law enforcement agencies and insist all filings are made online.

What to look out for from 4 March 2024

The following elements of the Act are expected to come into force from 4 March 2024 (depending on parliamentary timetables):

Registered office address

Companies must have an ‘appropriate address’ as their registered office at all times. This means that a document sent to the address (i) can be expected to come to the attention of a person acting on behalf of the company and (ii) that any documents sent to the registered address can be recorded by an acknowledgment of delivery.

Companies will not be able to use a PO Box as a registered address. However it will still be possible to use a third party agent address if they are considered ‘appropriate’.

If Companies House identifies an inappropriate address it will be able to change it to a default address held at Companies House and the company must provide an address within 28 days. If the company fails to do so, then Companies House will start the process of striking the company off the register.

Registered email address

Companies will need to provide an ‘appropriate’ email address when they incorporate a company. Existing companies will need to provide an email address when they file their next Confirmation Statement, if it is due from 5 March 2024. Companies will be able to update email addresses online, in the same way they would change the office address.

Companies House will use this email address to communicate with the recipient about their company. An email address will be “appropriate” if emails sent to it by Companies House would be expected to come to the attention of a person acting on behalf of the company. The email address will not be publicly available.

Going forward, companies have a duty to maintain an appropriate registered email address, in the same way that they do for a registered office; failure to do so is an offence.

Lawful statements

The subscribers of any companies incorporated from 4 March 2024 will need to confirm the company is being formed for a lawful purpose and also confirm the company’s intended future activities are lawful. Existing companies will need to make their ‘lawful purpose statement’ when they file their next Confirmation Statement from 5 March 2024.

Name checks

There will be stronger checks on company names that may give a false or misleading impression to the public.

 Enhanced powers for the Registrar through information requests

 Companies House will have greater powers to query information that appears to be incorrect or inconsistent on the register. It will be able to clean up the register and remove information they have reason to believe is inaccurate, incomplete, false or fraudulent.

If a company does not respond to a formal request for more information within the required timetable, they could face a financial penalty (up to a maximum of £10,000), prosecution or an annotation on the company’s record.

Other changes introduced by the Act

The Act also brings in a range of other changes which will require system development and secondary legislation before they are introduced in subsequent stages. Some of the further changes include:

New identity verification requirements for Companies House

With the need to prevent false appointments or information being recorded by Companies House, the Act also introduces new identity verification requirements. These apply to both new and existing directors, LLP members, general partners, persons with significant control (PSCs), relevant legal entities (RLEs) and any individual filing documents at Companies House. There will be a transitional period for existing companies to comply, but failure to do so will be considered an offence under the Act.

There will be two ways to verify:

1. Direct verification by Companies House using a digital service that links a person with a primary identity document (e.g. a passport or driving licence)
2. Indirect verification using an Authorised Corporate Service Provider (ACSP). An ACSP is an intermediary, who may file information at Companies House on behalf of a company for instance (e.g. an accountant, law firm or company formation agent), and who is authorised for these purposes by the Registrar.

Identity verification for directors

Identity verification is required by any person wishing to act as a director. It will be possible to disqualify a director where there have been persistent breaches of identity verification and filing obligations.

Individuals subject to UK sanctions may not act as a director. The ban on the use of corporate directors, which was introduced in 2015, will now be implemented by the Act, although there will be an exemption for ‘principles’.

Company registers and the Economic Crime And Corporate Transparency Act

The Act removes the requirement for companies to keep their own register of directors’ residential addresses, secretaries and PSCs. Companies House will become the single, verified source for this information.

Failure to prevent fraud – a new criminal offence

With a key aim of the Act being to prevent economic crime, it is no surprise that it introduces a new criminal offence of  ‘failure to prevent fraud’. This will make companies and partnerships liable for failing to stop employees, agents or subsidiary undertakings committing fraud for the benefit of the organisation or its customers.

The Act also changes the basis on which liability is attributed to a corporate body for economic crimes so that the involvement of a “senior manager” will be sufficient to convict the company. The offence applies only to large companies (as defined in the Companies Act 2006), being those meeting two of the following criteria: (i) more than 250 employees; (ii) more than £36 million turnover and (iii) more than £18 million total assets.

Look out for our future updates as further commencement dates are announced over the course of 2024/25.

If you have any questions about the implications of The Economic Crime and Corporate Transparency Act 2023 and how it may impact your business, please get in touch info@ts-p.co.uk.