Corporate Transparency and Register Reform

Following lengthy consultation that began in May 2019, the Government has now published its response to proposed changes to the role of Companies House, and increased corporate transparency amongst companies and legal entities. The consultation was vast, 1320 formal and unique responses were submitted.

The register of companies, i.e Companies House, plays “an important role in underpinning a strong, transparent and attractive business environment in the UK” writes the Minister for Corporate Responsibility. However, the framework within which Companies House operates has remined largely unchanged for over 150 years. It would therefore appear that the reform of a system that is accessed over 9.4 billion times per year and estimated to be worth between £1-3 billion, is well overdue. The key reforms proposed, all subject to funding and being agreed in the forthcoming government spending review, are as follows:

• Authentication Requirements. Only authorised people, each with their own user account, will be able to file on behalf of a company. The hope is that, where questions arise as to the accuracy of the data, Companies House will have the requisite data on who supplied the information and be in a better position to corroborate with an agent.
• Identity Verification. All company directors and Persons with Significant Control (PSCs) will need to have a verified account with Companies House. Identity will need to be verified by a combination of document-based verification (driving licenses, passports etc.) or knowledge-based verification. Verification will have to take place prior to incorporating any company, although the government hope this will take a matter of minutes. Although recognising that a transition period will be necessary for these more stringent measures, the report does indicate that “unverified individuals will face compliance action and possible prosecution”. Fortunately, identity verification will not apply to shareholders.
• Registrar Powers. Since its inception, Companies House has accepted that the information submitted to it has been done so in good faith. Currently, the government estimates that less than 5% of filings are rejected every year. With this in mind, a new statutory discretion to query and check information before it is placed on the official register will be introduced. This dispenses with the obligation to accept filings just because they were submitted correctly.
• PSC Exemptions. Although unsure as to exactly which details to include, the government intends to require additional information from public companies when trying to evidence their or the owner’s exemption from holding a PSC register. Fears have grown that the use of such exemptions is being abused and that information such as Legal Entity Identifier or International Securities Number should be collected.
• Name Check. The government hopes to accelerate proposals giving Companies House further discretion to query, and potentially reject, company names prior to their registration. This power could be extended to remove company names where they have been subsequently reviewed and found inadequate by the Company Names Adjudicator.

The government’s written response highlights an increase in the volume of economic crime in the UK as a key reason for reform. It is estimated that the cost, both social and economic, of fraud against individuals is £4.7 billion and the cost against businesses/the public sector is close to £6 billion. Further statistics show that actions such as “phoenixing” (where companies are repeatedly incorporated and dissolved in order to avoid paying any associated debts) and the setting up of companies purely for the purpose of laundering the proceeds of crime, have been on the rise.

It is hoped that the new reforms will strike “the right balance between greater assurance, enhanced protection of personal information, and streamlining processes” comments Lord Callan. Significant positive change, albeit accompanied by business interruption, is therefore expected. Further commentary and details around proposals and implementation are due to follow in the coming months.