A look at the Economic Crime and Corporate Transparency Bill and how it will affect UK businesses.
Economic crime is on the rise in the UK. As part of the government plans to combat it, new identity verification rules are due to come into force for directors and owners of UK companies later this year.
The Purpose of the Company Verification Process
The Department for Business, Energy and Industrial Strategy says that verification will increase the reliability of Companies House information, so that companies know whom they are doing business with.
To help combat fraud and money laundering, Companies House will:
- Not appoint directors until their identity has been digitally confirmed to prevent the registration of fictitious directors or beneficial owners and to stop fraudulent appointments.
- Have powers to query, investigate and remove false information from the Register.
The Company Verification Rules
The company verification requirements will be mandatory and apply to new and existing:
- Directors and owners of companies incorporated in the UK and directors and owners of overseas companies registered with Companies House.
- Members and partners of LLPs and limited partnerships.
- Those making filings with the Registrar.
- Persons with significant control (PSCs) and relevant legal entities (RLEs).
Companies already on the register will have a transition period to comply.
The Company Verification Process
Identity verification will be achieved digitally through direct verification via Companies House or through using an Authorised Corporate Service Provider (ACSP), such as a registered legal advisor.
The government advises that verification via Companies House should be straightforward through linking the person with an identity document, such as a passport or driving licence and then using scan and likeness matching technology as well as checking government databases. Alternative methods will be available for those individuals who cannot use the digital identity verification system.
Identity Verification by Authorised Corporate Service Providers
ACSPs must be registered with a supervisory body for anti-money laundering purposes and have an existing obligation to carry out customer due diligence checks on clients as well as register with the Registrar.
Identity verification checks undertaken by ACSPs will carry the same regulatory standing as direct verification by Companies House. The ACSP will need to declare that they have completed all the necessary identity verification checks when they file with the Registrar and Companies House as well as being obligated to retain records and provide further information to the Registrar if requested on their identity verification check.
The Company Verification Process and its Impact on Businesses
Existing companies, directors and PSCs should be aware that within 12 months of the Bill becoming law (later this year), they will need to verify their identity or face the consequences of non-compliance.
The consequences for failing to provide identity verification could be criminal sanctions or civil penalties as well as the Registrar recording unverified status with the resulting reputational damage. In addition, non-verification could have the following practical consequences:
- The registration or incorporation of a new company being rejected.
- A company being unable to file statutory filings.
- An unverified director being prohibited from acting as a company director.
Practical Considerations and the Company Verification Process
In time, company verification should become something that businesses and advisors treat as part of routine procedure. However, until companies get up to speed, they need to be aware of the following, in preparation for when the new rules come into force:
- Anyone filing documents with the Registrar will need to verify their identity before they can do so.
- New directors will need to undergo identity verification before an application for the formation of a company is delivered to the Registrar.
- After incorporation, a new director must verify their identity as soon as possible and must do so before their appointment is notified to the Registrar by a company.
- If PSCs are not verified after the incorporation of a company, they will commit a criminal offence. Individual PSCs will have a 14-day grace period after registering with the Registrar to verify their identity and RLEs will have 28 days. RLEs will also need to provide the name of their verified relevant officer.
- Only corporate entities with a legal personality will be appointable as corporate directors and directors of corporate entities will need to provide identity verification before the corporate entity is registered as a corporate director. Existing companies with corporate directors will have 12 months to comply with the new legislation once it comes into force.
There will, inevitably, be practical issues to resolve, such as the speed at which the government shares information as part of the verification checks and the need for individuals to undergo re-verification if, for example, they change their name.
In the run-up to its implementation, directors and owners of UK businesses should talk to us to see if they fall within the scope of the new company verification checks and to discuss how to get ready for verification.
How Can Morr & Co Help
If you would like to find out more about the new identity verification rules for companies, or any other corporate or commercial matter, speak to our team today.
For an initial discussion and a no-obligation quote, get in touch with us today by calling 01737 854 500 or by emailing [email protected] and a member of our expert team will get back to you.