The government published a White Paper in February 2022 on Corporate Transparency and Register Reform setting out its plans to reform Companies House and to increase transparency for UK corporate entities as part of its wider efforts to promote the UK’s economic national security, to clamp down on fraud and to prevent UK companies from being used to launder money and engage in corrupt activities.
These proposals are sweeping and, if implemented in their White Paper form, will fundamentally change and transform Companies House’s systems, processes and capabilities.
Reform of the role and powers of the Registrar of Companies
Under the proposals, the Companies House will no longer be a passive administrator of company information. Instead it will take a much more active role in promoting and maintaining the integrity of the register and the UK’s business environment. To do this, the Registrar will be given a much wider array of powers to query and investigate information supplied to it, to seek evidence for and to amend or remove information on the register. Those new powers will include the following:
- Query information: the Registrar has limited powers to query information at the moment. The new regime would allow the Registrar:
- to query information already on the Register if an identified error, inaccuracy or anomaly appears fraudulent, suspicious or may impact on the integrity of the register or the UK's business environment
- not to accept documents for registration where there is a reason to query the information provided
- Enhanced data sharing: the Registrar has similarly limited powers to analyse and share information held by Companies House. The White Paper proposes that the Registrar be given the power to:
- share relevant information with the law enforcement and other regulatory bodies to combat crime and regulatory offences and
- cross-reference its data with the data held by public and some private bodies
Identity verification and other measures relating to directors, beneficial owners and agents
New measures will be introduced to increase the overall accuracy and reliability of the information on the register and Companies House will develop a digital identity service for identity verification (expected to use likeness matching technology). It is proposed that entities registered at Companies House will have to have at least one fully verified natural person directly associated with them on the public register.
Identity verification
All new and existing directors, members of LLPs, the general partners of a limited partnership, people with significant control (PSCs) and anyone else submitting company filings must have an account with Companies House and their identities verified.
A director or PSC who is not verified by the end of a set period will commit an offence and may also be liable for a civil penalty. A company that is directed by an unverified director will also commit an offence.
If an individual fails to verify, the register will be annotated to show this so that anyone viewing the register can make their own assessment of the integrity and risk profile of the entity.
Corporate directors
Restrictions are proposed on the use of corporate directors. Currently, a company can have any number of corporate directors so long as it has at least one director who is a “natural” person. The use of corporate directors is common in finance transactions, and those corporate directors are often incorporated in offshore jurisdictions which have limited disclosure regimes thereby making it difficult to ascertain control and ultimate beneficial ownership. Accordingly, it is not surprising that the White Paper is seeking to impose restrictions in this area for greater transparency. It is proposed that a company will only be allowed to be appointed as a director if:
- It is registered in the UK
- All of that company’s directors are natural persons and
- Those natural person directors are, before the corporate director is appointed, subject to the identity verification process
Transparency of company ownership
It is also proposed that companies will be required to record the full names of their shareholders in the register; private companies, where shareholders hold at least 5% of the issued shares, will be required to provide a one-off full shareholder list. Any changes will be updated annually when a company files a confirmation statement. This is another measure aimed at greater company ownership transparency.
Preventing abuse of personal information
In a move designed to prevent the misuse of directors’ private details, the White Paper outlines how directors and PSCs will be able to request that certain personal information is hidden from public view in certain circumstances. At the same time, new measures will be introduced to allow individuals to access certain information that is currently unavailable for public consumption, subject to producing evidence of a legitimate interest in obtaining such information. The availability of information on dissolved companies will be enhanced.
Improved financial information on the register
The White Paper indicates that the government wishes to improve the way that financial information is filed with, and published by, Companies House. Company accounts will need to be filed with Companies House in digital format and filing options available to small and micro companies will no longer include “abridged” and “filleted” accounts, making the options easier to understand, reducing the scope for fraud and error, and increasing transparency.
Summary
The proposals set out in the White Paper are the most significant changes to operation of Companies House and its systems, processes, and capabilities since its creation in 1844.
They are designed to make Companies House more “fit for purpose” and to align its powers, processes and operations with Whitehall’s desire to enhance the UK’s economic security and its legal, regulatory and corporate transparency and to reduce the scope for UK corporate entities to be used for money laundering and other corrupt and/or criminal practices. The proposed transformation in Companies House’s role and responsibilities will complement and support other official measures which seek to tackle financial crime, such as those set out in the Economic Crime (Transparency and Enforcement) Act 2022.
At the same time, the proposed changes aim to reform Companies House so that it becomes more modern and digital, making use of the latest technology to create a more informative, responsive and reliable companies register. How proactive the Registrar will become under the new regime remains to be seen however; given limited resources and the vast amount of paperwork which Companies House processes, the proposals may not ultimately translate to the rigorous review of company information promised.
Andrew Dodds