Corporate transparency and register reform

On 28 February 2022, the government published a White Paper on Corporate transparency and register reform, which sets out its plans to reform Companies House and to increase the transparency of UK corporate entities in support of its reforms to clamp down on fraud and prevent UK companies and partnerships from being misused for international money laundering purposes.

These reforms sit alongside measures proposed by the government in the Economic Crime (Transparency and Enforcement) Bill 2022 and will be introduced through a second economic crime bill, which is set to propose greater government powers to seize crypto assets to tackle the growing threat of money laundering through online currencies. (See the government’s Press Release).

Listen to our podcast on the provisions in the Economic Crime (Transparency and Enforcement) Bill 2022 which will, when enacted, create a register of overseas entities.

Background

The White Paper sets out the government’s responses to the three consultations published in December 2020 on:

• Improving the quality and value of financial information on the UK companies register,
• Powers of the Registrar, and
• Implementing the ban on corporate directors.

Those consultations followed publication, in September 2020, of the Government's wider plan to reform the Companies House register. (See Corporate transparency and register reform: Government response.)

White Paper Proposals

Companies House transformation

There will be a fundamental operational transformation of Companies House’s systems, processes, and capabilities, to reflect its new role in the economy and its responsibility to help achieve the government’s priorities in national security, anti-corruption, tackling fraud and boosting enterprise. This transformation is already underway: £20 million is being invested in 2021-22, with a further £63 million announced up to 2024/25 at the most recent Spending Review.

Reform of the Registrar's existing role and powers

The Registrar of Companies’ statutory role will be expanded beyond her current remit of registering company information to include a new role to promote and maintain the integrity of the register of companies and the UK’s business environment. To do this the Registrar will be given stronger powers to query, seek evidence for and remove and amend information on the public register, including the following:

• New discretionary power to query information
  The Registrar will be able to query information both pre- and post- registration where an identified error, inaccuracy or anomaly appears fraudulent, suspicious or may impact on the integrity of the register or the UK's business environment. The new power will mean that the Registrar is no longer obliged to accept documents for registration where there is a reason to query the information provided.

  Where information is queried pre-registration, the filing will be rejected and a reason given. The entity will be able to re-submit the filing if it can address the query. If a filing is re-submitted without addressing the query or if it has not been resolved satisfactorily, it will continue to be rejected. When a query is raised post-registration, the entity will have 14 days to respond and provide evidence to support the response (the time period can be extended by the Registrar if appropriate).

  If an entity fails to respond to a query, or fails to provide sufficient evidence in its response, the Registrar will have a range of sanctions, which are currently being considered and, whilst it is likely that these will include criminal sanctions, the government considers that criminal sanctions should only apply to the most egregious breaches. Guidance will be prepared to help companies understand how and why the power might be used, and to provide examples of appropriate evidence.

• Power to remove information from the register
  The Registrar currently has limited powers to remove material from the register and so will be given a discretionary power to remove information from the register if it impacts on the integrity of the register. For example, the Registrar will be able to remove information following the use of the new querying power, but where material has been submitted that has legal consequence once filed, removal of that material should, in the majority of cases, remain a matter for the courts.

• Power to change the registered address
  The Registrar will be able to change a company’s address to the default address (without an application) where it is clear that the company is not authorised to use the address, closing a loophole which allowed for potential abuses of the change of registered office regime.

• Power to require documents to be delivered by electronic means only

Company names

The Registrar’s new power to query information will also apply to company names. The White Paper gives the following examples: where a proposed or registered name may be part of a campaign to target a company, organisation, or individual with whom the applicant has no connection, where the name of an international organisation or institution is being used without permission, or where there is intelligence of fraud or other criminal activity.

Where Companies House queries a registered name, and evidence to satisfy that query is not received or is unsatisfactory, the Registrar will also have the power to direct the company to change its name within 28 days, with power to change the name to its registered number (or an appropriate alternative) if the direction is disregarded. The company will have the ability to apply to court to set aside the direction, as is currently the case.

The Registrar will also have the power to reject an application to re-register an offending name where the Company Names Adjudicator has ordered the company not to use that name.

Verification of identity and other measures relating to directors, beneficial owners and agents

New measures will be introduced to increase the overall accuracy and reliability of the information on the register and Companies House will develop a digital identity service for identity verification. It is proposed that entities registered at Companies House will have at least one fully verified natural person directly associated with them on the public register.

Identity verification will require:

• all new and existing company directors, (and equivalents for other registrable entities, for example members of limited liability partnerships and the general partner of a limited partnership), persons with significant control (PSCs) and anyone else submitting filings to verify their identity.
• a director or PSC who is not verified by the end of a set period will commit an offence and may also be liable for a civil penalty. A company that is directed by an unverified director will also commit an offence.
• if an individual fails to verify, the register will be annotated to show this so that anyone viewing the register can make their own assessment of the integrity and risk profile of the entity.

The government will also introduce measures to void the appointment, and prevent the registration, of individuals acting as directors (and equivalents in other entities) who are disqualified (without court permission), undischarged bankrupts (without court permission) or a designated person under section 9 of the Sanctions and Anti-Money Laundering Act 2018.

Corporate directors - there will be restrictions on the use of corporate directors so that a company will only be allowed to be appointed as a director if:

• it is registered in the UK; and
• all of that company’s directors are natural persons; and
• those natural person directors are, before the corporate director is appointed, subject to the identity verification process.

Currently a company can have any number of corporate directors provided it has at least one director who is a ‘natural’ person.

The government has decided not to extend the corporate director principles more broadly to limited liability partnerships and limited partnerships. For these entities, the corporate person will have to provide the details of their director(s) or a managing officer, whose identity must be verified.

PSCs – the following additional information will be required on PSCs:

• companies to record full names for shareholders in their registers;
• private companies, and traded companies where shareholders hold at least 5% of the issued shares of any class of the company, to provide a one-off full shareholder list. Any changes will be updated annually when a company files a confirmation statement;
• where a company claims an exemption from the need to provide details of its PSC, it will have to provide the following information which will be publicly available: (i) the reason for the exemption; (ii) if listed on a regulated market, the name of the market the company is listed on; (iii) information that will direct searchers to where PSC information is published; (iv) the RLE conditions satisfied to be recorded as a PSC; and (v) if listed on a regulated market, the name of the market the RLE is listed on.

Transition period - there will be a transition period for existing companies and other registrable entities to comply with the new requirements before they could face sanctions and penalties.

Enhanced data sharing

The Registrar will be given new powers to: (i) share relevant information with law enforcement and other public and regulatory bodies, including the electoral commission and anti-money laundering supervisors, when certain conditions are met; and (ii) cross-reference data with data held by public and private bodies.

The Money Laundering and Terrorist Finance (Amendment) Regulations 2019 require regulated entities, such as financial institutions, to report discrepancies between information they hold on beneficial owners of companies and that held by Companies House about PSCs. These discrepancy reporting requirements will be expanded to require reporting of discrepancies in director information and registered office addresses.

Preventing abuse of personal information on the register

There will be new processes to protect personal information and sensitive addresses, as well as enhanced availability of information on dissolved companies.

Financial information on the register

The government will improve the way financial information is filed with, and published by, the Registrar, including:

• enhanced validation checks – as well the new power to query information (which will also apply to company accounts), enhanced validation checks on financial information will be introduced. These will be limited to ensuring the information provided in accounts is coherent, complete for a company of that size or type and is consistent with accounts submitted to other relevant agencies;
• digital filing - requiring companies' accounts to be filed in a digital format at Companies House using the industry standard ‘Inline Extensible Business Reporting Language’ (iXBRL) and that information is fully tagged so that the information is easier to interrogate, compare and check;
• reducing the filing options for micro-entities and small companies - by removing the ‘abridged’ and ‘filleted’ accounts options.

The government will continue to explore options to allow companies to file financial information once only (using a centralised accounts submission standard) rather than separate filings to HMRC, Companies House and other government agencies.