Corporate transparency and register reform: Government response

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.

An overview of the Government's proposed reforms has been published in a response to its May 2019 consultation. Proposals include preventing directors from being appointed until their identity has been verified by Companies House, introducing a statutory discretion for the Registrar to query information before placing it on the register and tightening the rules around changes to accounting reference periods.

The Government's next step will be to publish a comprehensive set of proposals that will detail how it believes the reforms should be implemented. Subject to the views received, the Government will then proceed to legislate as and when Parliamentary time allows.

Proposed changes

The reforms fall into four categories, as detailed below.

Knowing who is setting up, managing and controlling corporate entities

The Government intends to introduce compulsory identity verification for all:

• directors of companies (and those acting in a similar capacity, including general partners in limited partnerships and designated members in limited liability partnerships)

• persons with significant control (PSCs) and

• individuals who file information on behalf of a company.

The verification process will not apply to shareholders (as was originally proposed.)

Once a user has verified their identity, they will have their own account through which they will be able to access all Companies House services.  All subsequent appointments for that user will then be made using this account -- irrespective of role or company. The Government believes that most people will be able to verify their identity through digital processes in a matter of minutes.   

In a major change from the current process, a company director's appointment will not have legal effect or be shown on the register until that person's identity has been verified. Once verification has been confirmed and all necessary director details submitted, the individual can be registered as a director. Their appointment will be effective from the moment of registration.  Companies House will then inform the newly appointed director and the company that this has taken place.

PSC verification will be compulsory, and any non-verification status will be flagged on the public register.  Failure to verify will constitute an offence with sanctions being in line with those for existing PSC offences.  The Government will consider how these principles apply to companies owned and controlled by legal entities, as opposed to individuals.

Individuals will be able to use a third-party agent to set up their verified account and Companies House will not duplicate identity checks that have already been carried out by those agents as part of their customer due diligence process. Agents will, however, need to be covered by appropriate UK anti-money laundering regulations and to have set up their own "agent account" with Companies House.  That agent account can then be used to file information on behalf of all the companies that the agent acts for.

The new identity verification requirements will be applied to all live registered companies and their agents. There will be a transitional period during which current PSCs and directors will be allowed to carry on their current role and open a verified account with Companies House. Once the transitional period has expired, unverified individuals will face compliance action and possible prosecution.

Companies House aims to have finalised a system design for identity verification and to start user testing by end of the 2020/2021 financial year.

Improving the accuracy and usability of data on the companies register

• Reform of powers over information filed on the register

The Registrar's powers will be reformed to introduce a statutory discretion for her to query and check information before it is placed on the register. The Registrar will also no longer be obliged to accept any application to register a company that is validly submitted.  The Government intends to carry out further consultation on the scope of these powers and will provide more detail on the circumstances under which they might be triggered.

The Registrar's limited powers to amend information already on the register will be extended and the current administrative procedures that require an application to Companies House or a court order will be simplified. This will make it easier to remove or amend inaccurate information on the register. Where the validity of information has been called into question, the onus will be on the company that has filed it to evidence any objection to an amendment.

• Reform of company accounts
  Having received significant support for the reform of company accounts, the Government is now considering reforms that go further than initially envisaged and will consult again on more detailed proposals. It intends to:

  • take forward work to enable the digital submission of all types of accounts and will consult on proposals to introduce full iXBRL tagging for accounts in line with international best practice. This process would allow software to analyse, collate and cross-reference data across different sets of accounts;
  • reform the rules to allow companies to shorten their accounting reference period (ARP) only once in five years. The Government will also review the legislation on extending ARPs to ensure a consistent approach. Where a company wishes to align its ARP with that of a parent or subsidiary, Companies House will request the name and company number of the parent/subsidiary; and
  • review some broader aspects of accounts filings, including the exemptions that allow companies to submit micro or dormant accounts.

• Clarifying exemptions for PSCs

The Government will require additional information from certain companies to evidence where they or their owners are exempt from holding a PSC register. The information is likely to include details of the relevant regulated market and listing. The companies involved are publicly traded on regulated markets and are required to disclose their ownership and control under the listing and transparency rules that relate to that market.

• Dissolved company records

Companies House currently retains company records for 20 years from the date of a company's dissolution and six years of this historic information is freely available online via the Companies House Service.

The Government intends to make all 20 years' worth of historic information freely available, but this will only be actioned once legislation is introduced to enable a simple process for individuals to request that their personal information is protected (where appropriate.) In the meantime, the Government will make all dissolved records since 2010 freely available during 2021, and older dissolved records will still be available for a fee via other Companies House products.

Companies House updated its Search the Companies House register guidance on 18 September 2020 to reflect the Government's position outlined in the response document.

Protecting personal information

Directors will no longer be asked to list their occupation and Companies House will set up a process for individuals whose profession is currently shown on the public register to have that information suppressed. Individuals will also be able to request to have their signature, the day of their date of birth and their residential address (where used as a registered office) suppressed from the register.

Any information suppressed as a result of these proposed changes will continue to be stored securely at Companies House and will be available to law enforcement.

Ensuring compliance, sharing intelligence and other measures to deter abuse of corporate entities

• Sharing intelligence and data

The Government intends to introduce an obligation on entities that fall under the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 to report discrepancies between the information contained on the public register and the information they hold on their customers. This will build on the mechanism introduced in January 2020 (under the Fifth Money Laundering Directive) to allow obliged entities to report discrepancies relating to beneficial ownership of a company.

In addition to this enhanced discrepancy report, the Government will put in place "legislative gateways" to permit the cross-referencing of Companies House data against other data sets. The Government believes that together, these proposals form a package of measures which are key to tackling the misuse of corporate entities and combating economic crime. Where Companies House identifies information or behaviour which it considers suspicious, it will pass this information on to the relevant authority.

• Striking off limited partnerships

The Government will create a process under which limited partnerships can be "struck off" following a court order. The process will be designed with regard to the parallel proposals for a voluntary strike-off procedure, announced as part of the reform of limited partnership law in December 2018.

• Company names

Companies House will be given new powers to query, and possibly reject, company names before they are registered. The Government will also consider strengthening the powers that are available to remove a company name once it has been registered and review the role of the Company Names Adjudicator.

• Certificates of good standing

The Government recognises that certificates from Companies House are important for many companies and that it is important for this service to continue in some form. As such, Companies House will carry out an internal review of policies and processes related to the certification of register information and explore digital solutions where possible. It will consider changing the "Good Standing" name as part of this review and will explore ways to improve the security features and prevent fraudulent use of certificates.