Companies House is due to undergo widespread reform, as outlined in a white paper recently presented to Parliament. The move comes as the government strengthens its resolve to crackdown on the laundering of ‘dirty’ money in the UK.
In the white paper’s foreword, Lord Callanan, Parliamentary Under-Secretary of State for Business, Energy and Corporate Responsibility, said:
“…the companies register is accessed over 10 billion times a year, informing many business and lending decisions. It is an important foundation of the UK’s business environment.
“However, recent years have seen this framework manipulated, particularly in the use of anonymous or fraudulent ‘shell’ companies and partnerships. These provide criminals with a veneer of legitimacy to help commit a range of crimes, from grand corruption and money laundering to fraud and identity theft. This undermines our standing as a free, open and trustworthy democracy and undermines the UK’s reputation as a great place to do business.
“The Government is determined to stop this abuse.”
The proposals compromise the biggest change to the companies register since its creation in 1844. They include:
Companies must have least one verified natural person on the register
Going forward, all entities registered at Companies House must have at least one fully verified natural person associated with the company on the public register. The individual must verify their identity with official documents checked against their biometrics. Alternatively, they must verify their identity via an anti-money laundering supervised third-party agent.
According to the white paper, this will ‘make anonymous filings harder and discourage those wishing to hide their company ownership through nominees or opaque corporate structures.’ In other words, the individual must prove that they are who they say they are. This will help prevent the appointment of fictitious directors/beneficial owners.
Digital notification of director appointment
Anyone who is registered as a company director will automatically receive a digital notification informing them of their appointment. The individual will then have the opportunity to challenge this appointment. This aims to counter situations whereby someone’s address or identity is fraudulently used on the register without their knowledge or permission. This has happened in the past, but it has been time-consuming and sometimes costly for the victim to remedy the issue.
Accounts for directors and PSCs
Directors and PSCs will get a Companies House account once the verification process is complete. All their appointments will then be visible in one place, making it easier to trace company directors. Consumers can also check the register to see what companies a director is associated with. Again, it is hoped this will make it easier to spot incidents of fraud, particularly phoenix trading.
Powers to query suspicious activity
Companies House will get greater powers to query suspicious activity, especially those that follow patterns of misuse. This includes incongruous appointments and filings. In these situations, Companies House will be able to request further evidence or reject the filing altogether.
The white paper states: ‘suspicious activity may be identified in several ways including: reports made via the Companies House ‘Report it Now’ function, discrepancies reported by regulated professionals under Money Laundering regulations or members of the public, anomalies in register information identified via cross-checks with other data or internal analysis of patterns or trends in data held by Companies House or law enforcement.’
Greater data sharing opportunities
Companies House will be able to share data with law enforcement agencies and other government bodies, such as HMRC. This means companies who report different versions of their accounts to Companies House and HMRC will be flagged. According to the white paper, ‘it is not untypical to find that the company has claimed a stronger financial position in its Companies House filings in order to impress stakeholders, whilst stating a less strong position in its returns to HMRC in order to reduce its tax liability’.
Financial data held in same format at HMRC
Financial data will be held at Companies House in the same format as that used by HMRC. This allows better collaboration between the two organisations. Accounts filed with Companies House must be in a digital format using the iXBRL mark-up language.
Public register of those who fail to verify identity
Individuals who fail to verify their identity when incorporating or filing with Companies House will be noted on a public register. Those contemplating doing business with the company can access this register and make their own assessment of risk.
Sanctions for those who fail to comply
Those who fail to verify their identity could also face sanctions, as could those who fail to comply with the new requirements under the reforms. Sanctions can be civil and criminal.
Enhanced privacy mechanisms
Anyone whose personal information has previously been made available to the public on the register can request to have some of that information suppressed. This is particularly important for those who may be at risk of harm.
Get acquainted with the new rules
These reforms represent fundamental changes to the way in which Companies House operates. We urge all directors, PSCs and third parties to familiarise themselves with the new rules. Failing to comply can result in both criminal and civil sanctions. You can read the entire white paper here.