Unveiling the Economic Crime and Corporate Transparency Act 2023: A leap towards accountability and transparency

In the pursuit of creating a robust and transparent financial environment, the United Kingdom has taken a monumental step forward with the enactment of the Economic Crime and Corporate Transparency Act 2023.

This groundbreaking legislation, inspired by global efforts to combat economic crimes, sets a new standard for corporate governance and transparency in the UK and is the second set of amendments aimed at addressing economic crime, following the establishment of the Register of Overseas Entities through the Economic Crime (Transparency and Enforcement) Act of 2022.

A glimpse into the Economic Crime and Corporate Transparency Act 2023

The Economic Crime and Corporate Transparency Act (ECCTA) in the UK is a comprehensive legislative framework designed to improve the accuracy of data at Companies House, enhance capabilities to combat economic crime and prevent the exploitation of companies by criminals.

Introduced as a response to the evolving nature and growing sophistication of financial crimes, this act introduces critical provisions to boost the powers of Companies House, increase the transparency of UK companies and create intelligence-gathering powers for information sharing regarding economic crimes.

Key requirements for companies, as introduced by ECCTA

1. Identity verification for directors, persons with significant control (PSCs) and limited liability partnership (LLP) members

At the heart of the ECCTA is the requirement for all new and existing company directors and PSCs and relevant officers of a registrable relevant legal entity (RLE) to verify their identity.

For directors, PSCs and/or relevant officers of RLEs of new entities, this verification must take place before an application to form the company is made. For entities already in existence, a newly appointed director, relevant officer of an RLE and/or a PSC will need to verify their identity as soon as possible. A director will not be permitted to act unless their identity has been verified. Failure to verify your identity will be a criminal offence by both the individual and the company.

It is believed there will be a transition period for existing directors, PSCs and relevant officers of RLEs but if identification is not verified at the end of the transition period, then those who do not comply will face criminal sanctions or civil penalties. It has also been suggested that the company’s register at Companies House will be amended to state that the company is unverified.

Verification will take place directly through Companies House or indirectly through an authorised provider and such provider will need to be registered with a supervisory body for AML purposes.

2. Restrictions on who can file documents at Companies House

Currently, anyone can file documents at Companies House provided that the documents have been signed by the correct parties.

This will change as a result of the act so that only certain people can file documents. For example:

• if an individual wishes to file documents on their own behalf, they will need to have had their identity verified and the document to be filed will contain a statement confirming such verified status.
• an individual can file documents on behalf of another individual provided that the person filing has been verified or is an employee or officer of an authorised provider.
• an individual can deliver documents on behalf of a firm if they are an employee or officer of the firm and have had their identity verified or if the individual is an authorised provider or an officer or employee of an authorised provider.

This may cause some difficulties with filing for large corporate groups particularly where some members of the group are dormant or have no employees but it is hoped that secondary legislation will provide some guidance on how corporate groups can be compliant when filing for their group entities.

3. Record keeping requirements

The act requires companies to record an individual’s full name and service address and to include old information in respect of members and former members. A one-off confirmation statement will need to be filed to confirm such member information and for a non-traded company, this will need to confirm the details for every member. This one-off confirmation statement will be the first one due following the enactment of the ECCTA.

Members will also be required to inform the company of their details and also to keep them informed of any changes to their details, within two months after any change.

The act also removes the requirement to keep their own register of directors, directors’ residential addresses, register of secretaries and PSC register as the relevant information from these will be held on a central at Companies House. Companies will still have to keep other internal registers including the register of members and register of debentures.

4. New powers on Companies House

Companies House currently is required to accept information that is “properly delivered” and they have limited powers to query information where there is a suspicion of fraud or error. The ECCTA gives Companies House the power to reject filings and to query information already on the register where such information is identified as potentially fraudulent, suspicious or might impact on the integrity of the register. It also gives them the power to compel someone to provide information to enable it to make a decision about a filing query and allows them to impose a sanction if they are not complied with.

5. New offence – failure to prevent fraud

The act introduces a new criminal offence of a failure to prevent fraud where an ‘associated person’ commits fraud. An ‘associated person’ is an employee, agent or subsidiary of the relevant organisation, an employee of a subsidiary, or a person who otherwise performs services for or on behalf of the organisation, so the scope of liability is wide-ranging. A list of the fraud offences can be found in Schedule 11 of the ECCTA but includes false accounting, fraudulent trading, and fraud as defined in the Fraud Act 2006. It is a defence for the relevant entity to provide that, at the time of the offence, they had adequate policies and procedures as could be reasonably be expected in place to prevent fraud. Further guidance on what will constitute adequate fraud prevention procedures will follow in due course.

Conclusion

The Economic Crime and Corporate Transparency Act 2023 heralds a new era for the UK, signalling the nation's dedication to combating economic crimes. By championing transparency, the act not only protects the UK's financial interests by reducing and preventing fraud but also sets a precedent for other nations to follow. As businesses adapt to the evolving regulatory landscape, the ECCTA stands as a testament to the UK's commitment to fostering a secure and ethical financial environment for all.

What to do next?

If you are an owner or senior member of a UK entity, it is time to:

• start identifying those people whom you will need to provide verification evidence to Companies House
• once the guidance is released, start the verification process for those who have been identified
• start checking and verifying the accuracy of data in your company books and put in place policies and procedures to ensure that such data is kept up to date
• once the guidance is released, ensure that your fraud prevention policies and procedures are adequate and in line with the guidance.

We'll share further information about the ECCTA when it’s available, but in the meantime, if you’ve any questions about the new act, then don’t hesitate to get in touch with one of our expert team.