Abdulali Jiwaji and Gavin Collins discuss the Economic Crime and Corporate Transparency Act 2023 in The Times

Since its inception under the Joint Stock Companies Act 1844, the UK’s registrar of companies, which now sits within the executive agency, Companies House, has played the role of repository of UK company information. To date its role has been largely passive, to hold company information from the over five million active companies on its registry. To help combat “dirty money” and money laundering in the UK through sham companies, the Government is transforming Companies House into a proactive gatekeeper and administrative enforcement body.

Under the Economic Crime and Corporate Transparency Act 2023 (ECCTA), which is set to come into force (in part) in early 2024, Companies House will have four new objectives: to ensure that any person required to deliver a document to the registrar does so; that the information contained in the register is accurate and complete; that records kept by the registrar do not create a false or misleading impression to members of the public; and to prevent companies from carrying out or facilitating unlawful activities.

To enable Companies House to achieve these ambitious objectives, the ECCTA requires identity verification for directors, people with significant control, as well as individuals who file on behalf of new and existing registered companies. Companies will also need to provide an email address and an ‘appropriate’ registered address where a letter might be expected to reach someone acting on behalf of the company. Failure to ensure ID verification and the registration of an appropriate address are offences under the Act. Companies House will also be able to share information with other agencies, such as the National Crime Agency (NCA) or the Serious Fraud Office (SFO).

Despite these significant changes, much of the detail on how Companies House will exercise its new powers is left for future regulations to be determined by the Secretary of State. The Government website for the ECCTA changestoukcompanylaw.campaign.gov.uk states that Companies House will “explain when these changes will come into effect and how the identity process will work”.

The Government has also not made clear how funding and personnel for the revamped Companies House will be addressed. While there have been calls to increase the price of company incorporation, there little visibility as to the capacity building to allow Companies House to verify the information submitted by new companies, even leaving aside the millions of companies already on its register. No doubt some aspects of ID verification could be automated, and machine learning could be utilised to detect anomalies in company information – perhaps even flagging when information should be shared with enforcement agencies – the resource needs to be put in place for this and more.

Much depends on the underlying regulations that will ground the ECCTA in administrative reality.  Getting tougher in terms of making sure directors can be properly identified is clearly a step in the right direction. But query how much that will deter the determined fraudster. Sadly for the victims, in practical terms obtaining recourse against a defaulting director in situations of fraud and insolvency is not an easy path. That subset of directors with bad intentions will still have room to conduct their nefarious activity behind the shield of limited liability which comes with the corporate structure.