Abdulali Jiwaji and Paul Brehony discuss Companies House’s crack down on identity verification

Following the enactment of the Economic Crime and Corporate Transparency Act 2023 (ECTA), Companies House recently confirmed that new legal requirements will take effect from 18 November 2025: for directors and people with significant control (PSCs) of companies, it will become mandatory to verify their identities. The aim is to provide a critical mechanism that improves the quality and reliability of data and tackles misuse of company registers.

This article examines the backdrop of fraud which has precipitated these new legal requirements, their practical implications, penalties for non-compliance, the increased risks and obligations for company directors, and the relevance of fiduciary duties, as well as recent developments in case law.

Complex frauds frequently involve the use of equally elaborate corporate structures. Typically, these feature multiple directorships held by some individuals across multiple entities. Sometimes, the records held at Companies House do not reflect the true underlying position.

As part of legislative and regulatory efforts to combat such fraud, the ECTA introduces new provisions, mandating robust identity verification by Companies House of anyone whose details appear on the company register. Accordingly, company directors and PSCs are subject to a new identity verification regime, which will enhance the reliability of information held by Companies House.

For existing companies, the most immediate impact after 18 November 2025 is that they will not be able to file confirmation statements unless identification has been verified for every director.  The longstop date for compliance and identity verification is intended to take effect over the course of twelve months after 18 November 2025, so that all directors will have verified their ID by next autumn.

Given the trust and responsibility that are inherent to being a director, it might be regarded as a minor bureaucratic hurdle for those who want that role to ensure that their Companies House records are up to date, correct, and properly verified.  However, on a practical level, the verification process is neither intuitive nor straightforward. Since it requires personal engagement by individuals, circumstances will inevitably arise where directors encounter problems in trying to complete the identity verification as required.  An authorised corporate service provider will, of course, be able to assist professionally managed companies.  However, some individuals who are not committed to their role as a company director will not verify their ID as required, and may simply choose to resign instead.

It will be an offence to act as a director without being verified once director duties commence. However, Companies House has said that it will help and support businesses to comply with the requirements and will adopt a proportionate approach to enforcement, so the transitional period gives an opportunity to achieve compliance.

Failing to complete identification verification before the deadline will have consequences beyond being prevented from submitting the confirmation statement, which is itself a criminal offence. Persistent non-compliance could result in fines, potential disqualification as a director, and the company being struck off the register.

As well as the additional risks brought in with these recent changes, those considering a director role need to factor in other well-established duties and obligations.

The UK’s statutory regime brings in a range of duties which directors owe to the company:

• acting within their powers
• promoting the success of the company
• exercising independent judgment, as well as reasonable care, skill and diligence
• avoiding conflicts of interest
• not accepting benefits from third parties; and
• declaring interests in proposed or existing transactions or arrangements with the company.

Considerable responsibility is therefore attached to the position of company director. Akin to being a trustee, it includes fiduciary duties which are owed to the company for the benefit of the shareholders.

As one of several species of fiduciary (alongside lawyers, trustees etc.), company directors are subject to onerous duties. Recent case law on business diversion cases has emphasised the serious nature of these duties. As trustees of their economic interest, directors are relied upon by shareholders to run the company competently and to put the company’s interests above their own.

Similarly, third parties who deal with a company rely on its directors not to engage in malfeasance, such as wrongful or fraudulent trading. Invariably, problems can arise if directors allow the company to transact with third parties in circumstances where it may never be in a position to fulfil its contractual obligations, due to the risk of insolvency, for example.

In some scenarios, the court may also pierce the corporate veil, so that a director may be held personally liable.  For example, in terms of not acting in good faith, the case of Antuzis v DJ Houghton Catching Services Ltd has confirmed the principle that directors entering into contracts in bad faith can be held personally liable. Wrongful trading is another example – when directors continue to trade knowing that the company is doomed, or has already become insolvent.

One may add into consideration that any personal guarantees of the company’s obligations may render directors liable, and that less distinction is made between duties owed by executive and non-executive directors (depending on the nature of the role).

Directors must also be aware of and comply with/avoid: breaches of statutory duty (i.e. breaches of Health and Safety legislation); and Failure to Prevent offences – tax evasion and now fraud – which target organisations above a certain size. Although individuals are not targeted, management can be exposed to related risks, subject to having reasonable preventative procedures. Finally, there is tax evasion: usually in an insolvent situation, HMRC can in some circumstances hold directors jointly and severally liable for the company’s tax liabilities.

Prevention of fraud remains a paramount concern for regulators and a key priority for prosecutors.  Over time, and sometimes under the protection of limited liability that applies to corporate structures, we have seen examples of serious fraud being perpetrated by company directors and officers. If, when scrutinised, the integrity of a company’s records is found to be deficient, culpable parties may potentially evade detection and prosecution as a consequence.

It is therefore imperative that those holding trusted positions within a corporate structure are vetted, at least at a basic level, to reduce the possibility of fraudsters taking advantage of that structure in order to perpetrate fraud.

Given the potential burdens and the additional compliance obligations, it is reasonable to anticipate that there will be a net reduction in the number of companies, directors and PSCs being registered and maintained at Companies House over the next year.  The effect might be that a number of dormant companies will be wound up or struck off, which will reduce the burden on Companies House over time.

Although some individuals who are determined to perpetrate fraud will always find ways to circumvent the new requirements, the additional compliance hoops will help to deter more of that activity. For directors of the future, exercising independent judgment, and maintaining reasonable care, skill, and diligence will become more challenging than ever before.