The Economic Crime and Corporate Transparency Act 2023 (ECCTA 2023) represents a monumental shift in the UK's approach to combating economic crime and enhancing corporate transparency. This blog combines insights into the Act’s key provisions and their implications, providing corporate lawyers with a detailed guide to navigating these changes effectively.
Why is ECCTA 2023 important?
Receiving royal assent on 26 October 2023, the ECCTA 2023 introduces the most substantial changes to Companies House since its inception in 1844. The Act enhances the UK’s capacity to combat economic crime, supports economic growth, and makes the UK an attractive place for business. Over time, these measures will drive confidence in the UK economy, benefiting businesses and citizens alike.
The Act builds on the Economic Crime (Transparency and Enforcement) Act 2022, which introduced the Register of Overseas Entities. Together, these acts represent a significant advance in tackling economic crime and improving corporate transparency.
Key Provisions of ECCTA 2023
1. Reforms to Companies House
Registrar's new objectives and powers:
The ECCTA 2023 equips the Registrar of Companies with new statutory objectives and enhanced powers:
- Ensuring compliance: Companies must deliver mandatory documents and comply with proper delivery requirements.
- Maintaining accuracy: Information in the register must be accurate and complete.
- Preventing misleading records: The register should not create false or misleading impressions.
- Combatting unlawful activities: Companies and individuals are prevented from engaging in or facilitating illegal activities.
Identity verification requirements:
- New companies: All directors and people with significant control (PSCs) must complete identity verification before or during the company incorporation process.
- Existing companies: All directors and PSCs must verify their identity within a set period, as specified by forthcoming secondary legislation. Existing directors and PSC’s ID verification will be linked to the confirmation statements.
- Authorised representatives: Individuals acting on behalf of companies will need to verify their identity before they can file information with Companies House.
How identity verification will work:
The goal is to make the identity verification process straightforward. There will be two verification routes, both providing the same level of assurance:
- Direct verification with Companies House: This primarily digital service will link a person with their primary identity document, such as a passport or driving license. Alternative methods will be available for those unable to use the digital service
- Verification via an Authorised Corporate Service Provider (ACSP): Intermediaries like accountants, legal advisers, or company formation agents will handle the verification. These intermediaries must be registered with a supervisory body for anti-money laundering (AML) and already conduct customer due diligence checks. Identity verification will extend these existing checks.
- ACSP requirements: ACSPs must register with Companies House and confirm their AML supervised status before forming new companies or filing company information. They will also need to declare that all necessary identity verification checks on their clients have been completed before any filings can be made.
- Post-verification: Once verified, your status will be maintained by Companies House for all future filings. However, re-verification may be required in certain situations, such as a change of name.
- Non-compliance consequences: Failing to comply with identity verification requirements will result in both criminal sanctions and civil penalties. Additionally, Companies House will annotate the register to indicate unverified statuses, leveraging new delegated powers introduced with the ECCTA.
Address and email regulations:
Companies must have an appropriate registered office address and provide a registered email address for official communications. Failure to comply may result in severe consequences, including changes to the registered office address by Companies House and potential company strike-offs.
Changes to company registers:
Companies are no longer required to maintain their own registers of directors, residential addresses, secretaries, and PSCs. However, they must notify Companies House of any changes within two months.
2. Reforms to limited partnerships
The Act introduces stricter regulations for limited partnerships to:
- Maintain a connection with the UK.
- Enhance registration and transparency.
- Enable de-registration of limited partnerships that no longer trade or when de-registration is in the public interest.
3. Seizure of criminal crypto-assets
The ECCTA 2023 enhances powers to seize illegal crypto-assets linked to fraud, money laundering, and ransomware attacks, strengthening the Proceeds of Crime Act 2002.
4. Failure to prevent fraud offence
The Act introduces a "failure to prevent fraud" offence, holding large organisations accountable if an associated person commits a fraud offence intending to benefit the organisation.
Definitions and penalties:
- Large organisations: Entities meeting at least two criteria: turnover > £36m, total assets > £18m, or > 250 employees.
- Associated persons: Employees, agents, subsidiaries, and service providers.
- Penalties: Unlimited fines for failing to prevent fraud.
Defences:
Organisations can defend against liability by demonstrating:
- They were the target of the fraud.
- They had reasonable fraud prevention procedures in place.
- It was unreasonable to expect such procedures.
5. Changes to accounts filing
The ECCTA 2023 mandates digital filing of accounts, phasing out paper and web-based filings over the next 2-3 years. Companies must adopt suitable software for filing, with detailed guidance to follow.
6. Changes to confirmation statements
Every company must file a confirmation statement annually, confirming that their information is up to date and that future activities are lawful. This applies to statements filed from 5 March 2024 onwards. Companies House will have great power to scrutinise and reject information that seems incorrect or inconsistent with the details they already hold on your company.
7. Protecting personal information
The Act introduces measures to balance corporate transparency with the protection of personal information, allowing individuals to suppress certain personal details from historical documents and protect sensitive information from public view.
8. Register of Overseas Entities
The Register of Overseas Entities aims to improves transparency around the ownership of UK land by overseas entities. Since 1 August 2022, overseas entities who want to buy, sell or transfer property or land in the UK must register with Companies House and tell them who their registrable beneficial owners or managing officers are. This also applied retrospectively to overseas entities who bought property or land on or after:
- 1 January 1999 in England and Wales
- 8 December 2014 in Scotland
Non-compliance can lead to severe penalties, including restrictions on property transactions and prosecution.
Conclusion
The ECCTA 2023 represents a comprehensive effort to strengthen the UK's fight against economic crime and enhance corporate transparency. We play a crucial role in guiding clients through these changes, ensuring compliance, and mitigating risks. Staying proactive and informed is key to navigating this evolving legal landscape.
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