Summary
The UK Government has confirmed its intention to reform Companies House to clamp down on fraud and money laundering and increase the transparency of UK corporate entities.
On 18 September 2020 the Department for Business, Energy and Industrial Strategy (“BEIS”) published the Government’s response to its consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities (the “Consultation”). The framework within which Companies House operates has remained largely unchanged for over 150 years. The register of companies is now accessed over 9.4 billion times per year and is estimated to be worth £1-3 billion to the economy. Whilst Companies House works extremely well with high levels of customer satisfaction, the consultation noted growing instances of misuse of companies, concerns of accuracy of the companies register, challenges safeguarding personal data on the register and opportunities for Companies House to play a greater role, working in partnership with other public agencies.
We have previously discussed the proposed ban on corporate directors arising as a result of a separate but related consultation (see article post here). The purpose of this article is to outline the proposals for register reform and highlight the practical impact and potential identification requirements arising from these reforms.
Together the reforms represent a significant step forward in improving the quality of the publicly available data held by Companies House.
The Proposals
The intention is that any entities that are subject to the transparency provisions of the Companies Act 2006 will be caught (including registered companies, LLPs and limited partnerships).
The Government’s response to the consultation sets out a range of proposals that detail how the reforms should be implemented, and these fall into five main categories:
- Identity Verification
- Identity verification will be a part of the incorporation and filing processes at Companies House. The scope of those requiring identity verification will be company directors, persons with significant control (“PSCs”) and individuals who file information at Companies House on behalf of a company.
- The intention is that identity verification requirements will also apply to those who are in an analogous position to directors in other corporate structures, for example, members of limited liability partnerships, but will not apply to shareholders (as originally anticipated).
- A key departure from the current director appointment process is that a company director appointment will not be effective or appear on the register until the director’s identity has been verified.
- Once verified, a user will have an account which will be used to access Companies House services. All future appointments for that user, including to other corporate entities will be made using this account, even if for different roles or different companies.
- Verification of PSCs will also become compulsory and any non-verified PSC will be identified on the register. Any failure to verify a PSC will constitute an offence and will incur sanctions in line with the current PSC offences.
- All existing registered companies and agents will be required to comply with the identity verification requirements. The Government intends to implement a transitional period to enable verified accounts to be opened with Companies House. However, after the transitional period has ended, there will be sanctions for unverified individuals.
- Reforms to Companies House powers
The Registrar of Companies will be granted a new statutory discretion to query, seek evidence for, amend or remove information prior to it being placed on the register.
The Registrar’s powers to amend information already on the register will be extended. Currently, certain changes to information on the register require an application to Companies House or a court order, which can be time consuming to arrange. This extension will make it easier to remove or amend inaccurate information on the register.
- Protecting personal information
Currently, certain personal information can be suppressed from the register. A process is expected to be introduced allowing individuals to request to have signatures, the day of their date of birth and residential address(es) (where such an address has been used as a company’s registered office address) removed from the register.
It is also intended that directors will no longer be required to list their occupation.
Where confidentiality is desired, individuals who have previously had this information shared at Companies House will be able to request to have it removed from the register.
- Company Accounts
The Government received significant support for the wide reform of company accounts and, as a result, it intends to consult again on more detailed proposals. For example, the Government will be consulting on proposals to enable the digital submission of all types of accounts and move to iXBRL tagging in line with international standards as other jurisdictions are doing, such as the USA and parts of Europe. It will also review some other aspects of accounts filings, including the exemptions that allow companies to submit micro or dormant accounts.
- Permit cross referencing or Companies House data against other data sets
The Government intends to put in place “legislative gateways” to permit cross-referencing of Companies House data against other data sets. This will further improve the accuracy of the information and help deliver the full benefit of the other reforms listed above.
In addition, the Government will introduce an obligation on entities that fall under the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 to report discrepancies between the public register of companies and the information they hold on their customers.
Rosenblatt Comment
The transparency reforms that are being proposed and the additional checks that are to be carried out on information before and after registration at Companies House means businesses of all sizes will benefit from being able to take greater assurance from the register. Broader transformation of Companies House systems and processes will bring further benefits through streamlining and digitising processes and improving the user experience.
Next steps
The Government is to publish proposals outlining how the reforms will be implemented but has given a strong signal that it is committed to reform and we are likely to see some, if not all, of the changes coming in over the next 12 months. Following this, the Government will legislate when Parliamentary time is available.
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Authors
Natalie Georgiou, Senior Associate (Natalie.Georgiou@rosenblatt-law.co.uk)
George Kestel, Trainee Solicitor (George.Kestel@rosenblatt-law.co.uk)
