The Economic Crime and Corporate Transparency Bill is, at the time of writing, passing through Parliament. It comes on the heels of the Economic Crime (Transparency and Enforcement) Act which was passed earlier this year, and which allowed the Government greater powers in relation to imposing sanctions and reforming the UK’s unexplained wealth order (UWO) regime.
The Government, in its much heralded war on ‘dirty money’, committed to bring this latest Bill forward to deliver reforms on tackling economic crime, improving transparency over corporate entities, and providing more accurate information to assist in corporate and lending transactions. Anybody involved in corporate business activity will be affected by the proposed changes. In addition to company law reform, the Bill proposes reform of the law on Limited Partnerships and Scottish Limited Partnerships (SLPs). These changes will be discussed in a separate blog.
Some key features of the Bill are discussed below.
Companies House reform
The Bill sets out a substantial overhaul to the way Companies House operates – the single biggest set of changes since its inception! As a general theme, Companies House is to be given far greater powers in relation to the information it holds and what it can do with it. For example, where information provided to it appears to be incomplete or inconsistent with information already held by it, Companies House may decline or remove the information, request further information, or require the company to settle the inconsistencies.
The Law Society of Scotland, in its briefing for the Second Reading of the Bill (published in October), expressed concern that the registrar’s ability to question information may cause companies an excessive compliance burden and so this power should only be used when necessary. Fundamentally, the powers should not be used in a way which causes regulatory deadlines to be missed for legally explicable discrepancies. Therefore, it is suggested that the legal impact should be delayed until information is given by the company – a strategy the Society believes would encourage companies to provide information while enhancing the reliability of the register.
In addition, the registrar will be allowed further powers to verify the information it holds with other private and public sector bodies, and it will be allowed to provide data to law enforcement institutions in instances of obviously inconsistent filings and suspicious actions.
There will be new identity verification requirements for new and existing company directors, People with Significant Control (PSCs), and for persons delivering documents to Companies House. It is thought that these requirements will increase the authenticity of information held by the registrar, to allow for better commercial decisions and law enforcement inquiries. It will also be a requirement that directors and PSCs are non-disqualified individuals.
Small companies accounts
The Bill also proposes to change the filing requirements for small companies and micro-entities. Micro-entities are defined as entities which, for two successive years have two of the following: turnover up to £632,000; a balance sheet total up to £316,000; and 10 or less employees. The Bill proposes a requirement for micro-entities to file a balance sheet, profit and loss account and they may decide to file a directors’ report. While this will undoubtedly lead to greater transparency in respect of these companies, it will no doubt also be viewed as a burden for companies at the smaller end of the scale.
Appropriate addresses for correspondence
The Bill makes it a requirement for companies to maintain an appropriate email address, this being an email address at which emails sent to it by the Registrar would ordinarily be expected to be seen by a person acting on behalf of the company.
At the time of writing, the Bill is currently entering the Report Stage in the House of Commons, and is expected to become law in early 2023.
How can we help?
If you have any queries in relation to the Economic Crime and Corporate Transparency Bill, please contact a member of our Corporate Finance team.
This article was co-written by Sophia Thom, Trainee Solicitor.