The Economic Crime and Corporate Transparency Act 2023 – the clock is ticking to prepare for implementation

The Economic Crime and Corporate Transparency Act 2023 – the clock is ticking to prepare for implementation.

The introduction of the Economic Crime and Corporate Transparency Act (the ECCTA) in October 2023 marks a significant turning point for the role of the Registrar of Companies. The ECCTA implements the most radical reforms to Companies House since it was established in 1844.

The new legislation strengthens the powers of Companies House and improves transparency of UK companies. It makes it easier for law enforcement agencies to prosecute corporates for certain financial crimes. The ECCTA also introduces a new “failure to prevent fraud” corporate criminal offence.

The impetus for these reforms lies in the historic difficulties prosecutors have encountered when seeking to take action against corporate entities, as well as the rising levels of economic crime in the UK. Changes are expected to be rolled out from March 2024. If not already, companies should start preparing for implementation now.

Enhanced powers for Companies House

The reforms allow the Registrar to become a “more active gatekeeper” of the companies register in order to improve the reliability of the information held at Companies House. The Registrar will be able to query or reject filings, require further information to be provided, remove information already on the register and share information with other government departments and law enforcement agencies.

The Registrar will be able to impose a civil financial penalty up to a maximum of £10,000 if a person has engaged in conduct amounting to a “relevant offence” under the ECCTA. This is another fundamental change in the role of the Registrar.

The role of the Registrar is now as an enforcer. Before the ECCTA, the Registrar kept a register of company information. Late filing penalties were automatically applied. Now, the Registrar oversees an enforcement and prosecution agency which also maintains the register of company records.

Identity verification

To improve corporate transparency, anyone setting up, running, owning or controlling a company in the UK will need to verify their identity to prove that they are who they claim to be. There will be two ways to verify:

  • directly via Companies House using a digital service that links a person with a primary identity document (e.g a passport or driving licence); and
  • indirectly through an Authorised Corporate Services Provider (ACSP). An ACSP is an intermediary who is authorised to file information at Companies House on behalf of a company (e.g accountants, legal advisers and company formation agents).

Other relevant changes

Other important changes being introduced by the ECCTA include:

  • registered office: all companies must have an “appropriate” registered office address (e.g not a PO Box address);
  • email address: all companies must supply a registered email address;
  • company formation: when incorporating a new company, the company must confirm that it is being formed for a lawful purpose. Every year, the company must confirm that its future activities will be lawful;
  • register of overseas entities: the ECCTA amends the definition of “registered overseas entity” in land registration legislation so that if an overseas entity fails to respond to any requests for information from the Registrar, it will not be able to dispose of UK real estate assets;
  • company registers: companies no longer need to keep their own register of directors, directors’ residential addresses, secretaries and PSCs, meaning the public can rely on filings at Companies House as the single and verified source of information for these company registers;
  • company accounts: micro-entities and small companies must file profit and loss accounts (in addition to the balance sheet) and small companies can no longer file abridged accounts; and
  • register of members: all companies must keep their own register of members, as they will no longer be able to store this information centrally at Companies House.

New corporate criminal offences

Corporate liability

The ECCTA makes a significant change in the way the criminal law applies to businesses (companies, LLPs and partnerships) of all sizes.

The business will be guilty of an offence if anyone who is a “senior manager” commits the offence or attempts or conspires, encourages or assists someone else to do so. Initially, only certain crimes are caught by this change. Principally, these are economic crimes such as false accounting, fraudulent trading and money laundering.

FCA regulated firms and other businesses will also have corporate liability under these new provisions, under the Financial Services and Markets ECCTA 2000 and Financial Services Act 2012.

Failing to prevent fraud

The ECCTA introduces the new criminal offence of “failure to prevent fraud”, which applies to large organisations only. To qualify as “large”, an organisation must meet at least two of the following conditions: it must have (a) more than £36m annual turnover (b) assets of more than £18m and/or (c) more than 250 employees.

Broadly, a large organisation will be guilty of an offence if an “associate” (e.g an employee, agent, subsidiary undertaking or person who otherwise performs services for or on its behalf) commits a fraud offence, intending to benefit the organisation or its customers.

Organisations will benefit from a compliance defence if it can prove that, at the time the fraud was committed, it had reasonable precautions in place to prevent fraud, or that it was reasonable to have the precautions in place that it did. The Government is required to publish guidance on what constitutes “reasonable precautions” (which is expected in early 2024).

How to prepare

The upcoming changes will have a far-reaching impact on the current administrative practices of UK companies and other entities. New elements, such as identity verification, will need to be factored into transaction timelines, particularly in relation to director appointments, company filings and new company incorporations.

Whilst the existing failure to prevent fraud offence is primarily a concern for large organisations, over time it is likely that the standards it imposes will become “good practice”. Smaller organisations should also consider whether they need to upgrade their existing policies and procedures in a similar manner.

For further information, please contact Marnie Thomas in the Corporate & Commercial team on 01202 437155 or email m.thomas@hklaw.ukHK Law has offices in BournemouthBlandfordCrewkerneDorchesterParkstonePooleSwanage, and Wareham.

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