1. Introduction

The Economic Crime and Corporate Transparency Act 2023 (ECCTA or the Act) received Royal Assent on 26 October 2023 and is seen as a key part of the UK government’s legislative programme to prevent the abuse of UK corporate structures and tackle economic crime. The new law continues the recent trend to modernise the legal framework to better tackle crime, prevent fraud and allow for more transparency, following the UK government’s stated objective in its “Fraud Strategy” paper (published in May 2023) to reduce fraud on 2019 levels by 10% by December 2024. ECCTA focuses on improving the transparency, accuracy and quality of data filed with the Registrar of Companies (Registrar) and thus help tackle economic crime and boost confidence in the UK economy.

The new provisions are vast and lengthy and UK company law has not seen changes to this extent since 2006 and implementation of the new Companies Act. The new Act introduces significant changes to the registration and periodic filing obligations of UK companies, limited partnerships, limited liability partnerships, overseas companies with UK establishments and overseas entities owning UK land, together with the associated offences for non-compliance. The changes are in some cases fundamental and will have a practical impact for all stakeholders that deal with UK corporate structures.

The new legislation is not fully complete and is still evolving in parts through secondary legislation that is in the pipeline. This article provides an overview of the key changes that have been published to date.

2. Identity verification requirements

One of the main features of ECCTA is the introduction of new identity verification requirements for all company directors (and those with a similar role in other in-scope registered entities), people with significant control (PSCs) and those delivering documents to the UK Registrar’s agency (Companies House). These new procedures will seek to crack down on bogus and fraudulent registrations and protect better against ID theft. This has generally been a problematic issue in the UK which reached a zenith during the COVID pandemic given the business support loans that were being made available.

An individual’s identity is verified if either they have verified their identity with Companies House directly (via a new digital service under development) or an Authorised Corporate Service Provider (ACSP) has confirmed to Companies House that their identity has been verified. ACSPs must be “relevant persons” for anti-money laundering purposes. They will need to have applied for, and been granted, ACSP status by Companies House before acting. Reed Smith’s corporate services team will seek to be registered as an ACSP as I expect will other firms of accountants or lawyers, or regulated trust or company service providers.

An individual must not act as a director unless they have verified their identity and a statement to this effect has been filed at Companies House. The new requirement will apply to all existing directors and any newly appointed directors. Breach of this requirement will be an offence for the director concerned, the company and any other officers in default. It is anticipated that there will be a transitional period for directors appointed before the new law is in force to verify their identity.

3. Ultimate Beneficial Owners (UBO) / Persons with Significant Control (PSC)

The new requirements also apply to the UK’s UBO regime which has been in place in the UK since 2016. Each individual registrable PSC must also verify their identity and a registrable relevant legal entity (RLE) must notify Companies House of a relevant (individual) officer (director or equivalent) whose identity has been verified, and any subsequent changes in relation to this person. Once the new law is in effect, transitional arrangements will allow existing PSCs 14 days and existing RLEs 28 days from a date (to be decided) to complete this process and to file statements to this effect at Companies House. Non-compliance with these provisions will be an offence for the relevant PSC or RLE and every officer of an RLE in default.

The Act also makes further changes to the detail of the PSC legislation, including the obligations on companies to investigate and obtain PSC/RLE information, and on registrable PSCs, RLEs and others to provide this information, and any changes to it. These will include revised obligations on companies to send information request notices for these purposes, and to notify Companies House of failures to respond (or late responses) to these notices. A company will also have to notify Companies House when it knows (or has cause to believe) someone has become a registrable PSC or RLE, or has ceased to have this status, or their details have changed. Companies House will also have the power to remove names and addresses of PSCs and shareholders used without consent. Previously, such individuals would have had to apply to court to remove their details. The new powers would benefit companies who have been subject to fraudulent filings.

4. Filings with Companies House

The new legislation imposes new controls on persons who can deal with Companies House. Anyone delivering documents to Companies House for themselves must have their identity verified and confirm this to Companies House. Anyone deliver-ing documents to Companies House on behalf of a company or other firm will need to be an officer or employee of the relevant company/firm (or of a corporate officer of the relevant company/firm) whose identity has been verified, or an ACSP, or an officer or employee of an ACSP. Equivalent provisions will apply when delivering documents on behalf of an individual. A disqualified person cannot deliver documents to Companies House other than via an ACSP (and confirmatory statements for this purpose must be made to Companies House). Breach of these provisions, in addition to involving a false statement offence, will mean the relevant document is not deemed to have been delivered to Companies House.

5. Increased powers for the Registrar

The ECCTA also gives the Registrar new and enhanced powers and encourages it to become a more active gatekeeper of data concerning companies and other UK registered entities. Among other things, the Registrar will have new objectives aimed at maintaining the integrity of the records held at Companies House, including ensuring that the requisite information is delivered to it and is accurate and complete, and preventing and deterring unlawful activities. These objectives will be supplemented with enhanced powers to query suspect appointments or filings and to request further evidence or require inconsistencies to be resolved, to remove material from the register or annotate it, or reject a filing, as well as share information with other public authorities, such as HMRC for instance.

There is a significant step-up in the measures available to enforce compliance with the legislation, in particular existing and new Companies House filing requirements. In most cases, breach is an offence punishable by fine or, for more serious breaches, imprisonment. Where a legal entity commits an offence, in general, those officers in default will also commit an offence. Many filing obligations will now also require specific declarations to be made to Companies House. In a major change to the current offence (which requires knowledge or recklessness for liability), a person can be fined if they provide misleading, false or deceptive statements or filings to Companies House “without a reasonable excuse”. Doing so knowingly will be punishable by imprisonment and/or a fine. Similar offences can apply where a person fails to comply or makes misleading, false or deceptive statements in connection with their obligations under the PSC or Register of Overseas Entities legislation. Overseas entities must also comply with Companies House registration requirements or risk restrictions on selling, transferring, leasing or borrowing against their property. Overseas entities must also provide valid ID verification and a valid registration at Companies House if they wish to buy new UK property.

The Registrar will also have the power (to be expanded on in separate regulations) to impose financial penalties of up to £10,000 for breaches of a wider range of obligations, not just for late filing of accounts, without having to pursue defaulters through the courts. Together with this new power, amendments to existing legislation will also make it easier to disqualify a person from being a director if they are in persistent breach of filing obligations or the new verification requirements for directors and PSCs.

The Act also introduces new offences relating to fraud and failure to prevent fraud, with new tests for corporate liability offences. These changes are beyond the scope of this article, but Reed Smith has published separate client alerts where you can find more detail on these new offences.

6. Registered office address

UK companies must now have an “appropriate address” as their registered office. Appropriate means that the documents being sent to the registered office address will come to the attention of a person acting on behalf of the company and that the delivery can be acknowledged. A PO Box will no longer be sufficient. The practice of using service providers, like Reed Smith, to provide registered office services can still continue. Companies House has indicated that it will take action in the event of default. If it finds that a registered office address is not appropriate, it will be changed to a default address at Companies House. The company will then have 28 days in which to provide an appropriate address, with evidence of proprietary ownership, otherwise Companies House may start the process to strike the company off the register.

7. Day to day maintenance of a UK company

ECCTA also makes changes to other aspects of company maintenance, such as company registers, company formation, company and business names, registered email addresses, annual confirmation statements, accounts and reports, overseas companies, limited liability partnerships and limited partnerships. Some of these changes may be seen as form over substance, but nonetheless stakeholders will need to review these changes to ensure they are in compliance.

In conclusion, ECCTA represents a major overhaul of UK company law and aims to enhance the transparency and accuracy of information on the UK’s corporate registers, as well as to deter and prevent economic crime and the misuse of corporate structures. The changes will impose significant additional administrative burdens on companies and other registered entities, as well as on those who act for them or deal with them. Companies and their advisers should familiarise themselves with the new requirements and ensure they are ready to comply.