The impact of the Economic Crime and Transparency Act 2023 on local authorities and their companies

Sophie Alexander provides a critical analysis of the likely impact of the Economic Crime & Corporate Transparency Act 2023 on local authorities and their companies.

The Economic Crime & Corporate Transparency Act 2023 (ECCTA) is designed to implement wide-ranging reforms to tackle economic crime and improve the transparency of corporate entities. Whilst the ECCTA is now law, most changes will be introduced over the course of the coming one to two years, allowing for secondary legislation and the necessary significant reform of the systems within Companies House to enable UK entities to discharge their new duties under the ECCTA.

Getting to grips with the changes the ECCTA will introduce is important for local authority companies and private client companies alike as it envisages the biggest overhaul of Companies House (the Registrar) since 1844. To further understand the changes ECCTA will introduce, we set out below an easily digestible summary of the provisions and key changes.

SUMMARY OF PROVISIONS AND KEY CHANGES:

The ECCTA received Royal Assent on 26 October 2023. The ECCTA introduces a wide range of reforms to address economic crime and enhance transparency within companies. The reforms specifically focus on enhancing the role of Companies House.

Some of the key changes include identity verification for directors and PSCs, limiting who can file documents at Companies House on behalf of companies. It also introduces a new registered email address and better defines registered office requirements as well as changing requirements regarding record keeping by abolishing the need to hold certain registers internally.

1. Company formation

Several changes relating to company formation are set out in the ECCTA, including:

• a new requirement to include an express statement in the registration application that the company’s purposes will be lawful;
• subscribers will need to set out their full name (forename and surname) and will need to confirm that they are not disqualified directors;
• stronger checks on company names; and
• identity verification will apply to directors and PSCs.

2. Identity verification

Compulsory identity verification has been introduced for directors, PSCs and those delivering documents to Companies House. Directors and PSCs of new companies will need to have their identity verified prior to the formation of the company and existing companies will have a transitional period in which to verify their identities.

New directors of existing companies will not be able to become directors until their identity has been verified. The verification can be undertaken either directly via Companies House or through an authorised corporate service provider (ACSP), who will themselves need to be verified.

In order for an ACSP to be issued with verified status by the registrar, a precondition is that they must be registered with a supervisory body for anti-money laundering purposes. As such, they will have an existing obligation to carry out customer due diligence checks on their clients. Sharpe Pritchard, as a law firm, meets this pre-condition and therefore could file on behalf of our relevant clients.

The ECCTA will make it a criminal offence for:

• an individual to act as a director unless their identity is verified; and
• a company, where it allows a director to act prior to identity verification.

3. Filing documents at Companies House

The ECCTA limits who can file documents at Companies House on behalf of companies, to individuals whose identification has been verified or to ACSPs. Where companies or limited liability partnerships want to file their own documents, they will have to do it through their directors, company secretary or employees whose ID have been verified. Alternatively, an ACSP may be used.

4. Enhanced Registrars’ Powers (including investigative powers)

The ECCTA has reformed Companies House from a passive recipient of information to an active gatekeeper. It has provided it with more powers to query or remove information and a better ability to share information with law enforcement agencies.

For example, on 19 February 2024, the draft Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 were presented to Parliament. These regulations will come into force on 2 May 2024, and will give Companies House the power to levy financial penalties on individuals proven, beyond reasonable doubt, to have committed any offence under the Companies Act 2006 (apart from offences relating to company secretaries, resolutions and meetings or audits).

These new Regulations aim to provide more flexibility by giving Companies House the discretion to issue a civil sanction instead of relying on criminal proceedings. The purpose of introducing this new financial penalty regime is so that the Registrar can promote compliance, as well as maintain the integrity of the UK companies register.

The maximum financial penalty that Companies House can impose under these new regulations is £10,000.

5. Company names

Companies House will have greater powers to query company names which appear suspicious or anomalous and could be used to facilitate crimes or suggest a false connection with a foreign government or international organisation. The principle behind this reform is to maintain the integrity of the public register.

6. Registered office and email address

Companies will need to ensure that their registered office is at an “appropriate address” and for the first time will also need to register an “appropriate email address”.

“Appropriate” means an address where a document or an email sent to that address would be “expected to come to the attention of the person acting on behalf of the company”.

The registered office change will probably not impact our clients, but it is worth noting companies who use a PO Box or an unstaffed address will need to change to somewhere which satisfies the new requirements. Companies House will also have the powers to change the registered office if it is not satisfied that it meets the relevant requirements.

The email address is a welcome update and will allow Companies House to communicate electronically with companies. The email address will be kept off the public register.

7. Abolition of need to maintain certain internal registers

The ECCTA abolishes the need for companies to maintain their own registers of directors, directors’ residential addresses, secretaries and PSCs. Therefore, the general public will rely on the central records at Companies House for the most current information.

8. Greater transparency of company ownership

The ECCTA aims to improve the integrity of company registers and prevent people from exploiting the register. Some of the changes include:

• recording the full names of shareholders (not just an initial and a surname) and including a full list of shareholder names in the next confirmation statement; and
• imposing duties on members to provide their information to companies and keep it up to date.

9. Financial information reporting

The ECCTA modifies the reporting of certain financial information to Companies House, including:

• all small companies and micro-entities will no longer be able to file abridged accounts and will have to file their profit and loss account. Small companies will be required to file their directors’ report but micro entities will have the option to not prepare or file a directors’ report; and
• companies relying on an audit exemption will, in their balance sheet, need to provide an additional statement by the directors identifying the exemption they are relying on and confirm that the company meets the qualifying criteria.

It is expected that further changes will be made in the future (timing not yet known) to include, mandatory digital filing, and a reduction in the number of times a company can shorten its accounting reference period. This is to make a drive towards a fully digital service.

10. Corporate directors

The ECCTA will implement restrictions on companies having corporate directors, in order to increase the transparency around those who run the company.

11. Protection of personal information

The ECCTA has tried to balance the increase in transparency by extending the options when individuals can request for the suppression of certain information from the public. The details of who will be able to apply for suppression and the related process will be set out in future regulation.

12. Limited Partnerships

The ECCTA also contains major changes relating to how limited partnerships (LPs) are regulated with the idea of better tackling abuse. Historically, very limited information had to be publicly filed about LPs. The reforms include tighter registration requirements, requirements to submit more information to Companies House, including annual confirmations, and maintenance of an “appropriate” registered office address.

13. Secondary Legislation

On 19 February 2024, further secondary legislation was presented to Parliament – the Registrar of Companies (Fees) (Amendment) Regulations 2024 and the Registrar of Companies (Fees) (Register of Overseas Entities) Regulations 2024. These Regulations revise the fees payable to Companies House, taking effect on 1 May 2024. Examples of existing fees that will see an increase are:

• online same-day incorporation service rising from £30 to £78;
• same-day change of name fee escalating from £30 to £80; and
• same day reduction of share capital of a company from £50 to £136.

These cost increases aim to put the cost of making Companies House an active gatekeeper on companies using the register, rather than on the taxpayer.

On 4 March 2024, the Limited Liability Partnerships (Application of Company Law) Regulations 2024 were published. These regulations modify the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 and the Limited Liability Partnerships Act 2000, extending the amendments introduced by the ECCTA to Limited Liability Partnerships (LLPs). The finalised regulations align with the draft version published on 18 December 2023.

The key amendments in the draft regulations include:

• additional restrictions on the use of certain LLP names;
• additional registered office and email address requirements;
• restrictions on LLP members including the prohibition on disqualified persons acting as directors, and the improper use or disclosure of a director’s residential address;
• the requirement to confirm in annual confirmation statement that intended future activities are lawful; and
• restrictions on dissolution, and additional conditions for restoration.

This instrument will ensure that the ECCTA applies coherently between companies and LLPs.

On 4 March 2024, the Registered Office Address (Rectification of Register) Regulations 2024 and Service Address (Rectification of Register) Regulations 2024 were published. These regulations implement the changes regarding registered offices at point 6 above.

On 5 March 2024 the Principal Office Address (Rectification of Register) Regulations 2024 were published. These regulations give the Registrar the power to change the address registered as the principal office of a company. This change to a default address is implemented when the Registrar is not satisfied that the existing address is the principal office.

This instrument is intended to assist the Registrar maintain the accuracy of the register and act as an incentive for directors, secretaries and people with significant control over companies to ensure the records accurately reflect the address of their principal office.

Sophie Alexander is an Associate at Sharpe Pritchard LLP.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it.