The Economic Crime and Corporate Transparency Bill

Written by: Marnie Thomas, Solicitor in the Corporate and Commercial team based in Poole

It’s no secret that corporate structures are frequently being used by individuals to commit white-collar crimes. In 2022, over £1.2billion was stolen by criminals in the UK through fraud, equivalent to over £2,300 every minute.

The government’s Economic Crime and Corporate Transparency Bill (Bill) drives a cultural change through improved fraud prevention procedures and increased transparency of UK companies.

Since 1844, Companies House has been nothing more than a register. Whatever has been submitted has been recorded. The content has never been checked.

The Bill will transform the role of Companies House. What is submitted will now be checked. Information will be shared between agencies.

The Bill is expected to receive Royal Assent imminently.

What does the Bill mean for UK companies?

The government acknowledges that the lack of powers afforded to officials has compromised the integrity of the Companies House register. The Bill aims to combat this by reforming the role of the Companies House. The reforms include:

Verification of Identity

The Bill introduces identity verification requirements for all new and existing directors, people with significant control and those delivering documents to Companies House.

There will be two routes for an individual to verify their identity:

directly via Companies House; or
through an Authorised Corporate Services Provider (ACSP) e.g law firms or accountancy practices.

The new ID requirements make it difficult for a person to file anonymously, or to hide their interests in companies through opaque ownership structures.

Accounts

At present, small companies and micro-entities are not required to file a copy of their profit and loss accounts. This minimal level of disclosure is attractive to fraudsters wishing to present a false image of the company.

As part of the reform, the rules regarding financial filing for micro-entities and small companies will be simplified. In particular:

micro-entities will be required to file a balance sheet and a profit and loss account; and
small companies will be required to file a balance sheet, a profit and loss account and a director’s report (removing the scope for small companies to file abridged accounts).

A company is ‘small’ if it has any two of the following:

a turnover of £10.2million or less;
£5.1million or less on its balance sheet; and
50 employees or fewer.

A ‘micro-entity’ has any two of the following:

a turnover of £632,000 or less;
£316,000 or less on its balance sheet; and
10 employees or fewer.

Having key information such as turnover and profit and loss available on the register will help creditors and consumers make better-informed decisions.

Data-sharing

The Bill gives Companies House the power to cross-check data with other public and private sector bodies and to remove or amend information submitted to, or already on, the register. Companies House will also be able to proactively share information with law enforcement bodies where there is evidence of anomalous filings or suspicious behaviour.

This reform allows Companies House to actively gatekeep data (in contrast with its previous passive role) whilst making the register more reliable, complete and accurate.

Company registers

All companies will need to maintain their own register of members, with the Bill revoking the option for companies to store their register of members on the Companies House central register.

There will no longer be a requirement for companies to maintain a register of directors, a register of directors’ residential addresses, a register of secretaries or a PSC register, though changes to the information contained in each register will still need to be notified to Companies House.

Corporate and individual liability

The Bill proposes that companies can be criminally convicted of economic crimes and receive a fine, in addition to any sentences imposed on individuals who are also found guilty of the same offence. Where the company is convicted, then every director in default also commits the offence. An individual may be punished by imprisonment.

To deliver a false, deceptive or misleading filing or statement to Companies House “without reasonable excuse” will be a criminal offence. This is a significant change. Currently, a person must be shown to have “knowingly or recklessly” delivered a false, deceptive or misleading document or statement.

The maximum fine will depend on the particular offence charged, but for most serious crimes an unlimited fine may be imposed.

How to prepare

Once the Bill receives Royal Assent, there will be a short transitional period of six months where all corporate entities must comply with the new requirements.

The Bill significantly increases the importance of making timely and accurate filings with Companies House.

If you would like our assistance with ensuring that your organisation is prepared for the proposed reforms, please do not hesitate to contact us.

This article is intended for guidance only and is not legal advice.

The Economic Crime and Corporate Transparency Bill: What this means for you