A New Era for Companies House: The Economic Crime And Corporate Transparency Bill
Key Contact: Jon Lawley
Author: David Williams
The UK government has long been under pressure to tackle economic crime and increase corporate transparency by introducing legal reforms.
The resulting Economic Crime and Corporate Transparency Bill (the Bill) is intended as part of the Government’s solution. Having now completed its second reading in the House of Lords, the Bill looks set to become law during the final quarter of 2023.
What does the Bill include?
As well as creating new criminal offences, the Bill envisages a much-expanded role for Companies House, transforming it from a traditionally passive agency into a more inquisitorial and active body, charged with ensuring compliance with company law and the accuracy of corporate information it holds.
In its current form, the Bill proposes a body of amendments to the Companies Act 2006, granting Companies House wide-ranging investigative and enforcement powers to ensure the integrity of the information held by the Registrar.
In particular, Companies House will be empowered to:
- require identity verification for all new and (notably) existing directors, PSCs and persons filing or delivering documents to Companies House
- crosscheck information with other public or private bodies and pro-actively share information with enforcement bodies when evidence of filling errors or suspicious behaviour comes to its attention
- reject or query new fillings that are inconsistent with the information already on the register or otherwise available to the registrar
- impose financial penalties for breaches of the Companies Act 2006 as an alternative to criminal prosecution.
In addition, anybody will have the right to disclose information to the registrar to enable Companies House to exercise its powers, because all disclosures will be exempt from civil liability for breaches of confidentiality if the information is shared for the purpose of preventing, detecting or investigating economic crime.
To further strengthen Companies House, the Bill will create the following new offences:
- failure to prevent fraud and false accounting. This will apply when an employee or agent of an organisation commits fraud and the organisation did not have reasonable fraud prevention procedures in place – even in the absence of knowledge or consent. In the Bill’s current form, the offence will only be relevant to companies with more than 250 employees and a turnover in excess of £36 million
- while it is already an offence for a person to “knowingly or recklessly” deliver a false, deceptive or misleading filing or statement to the registrar, the quoted wording will change to “without reasonable excuse”, establishing a more exacting duty on directors. There will also be an aggravated offence of knowingly making such a filling at Companies House.
As is the case with many corporate crimes, when the offence is committed by a company, every officer of that company will also be considered culpable.
The Bill is still progressing through Parliament, and so significant changes are still possible before it becomes legislation. It also unclear how certain aspects of the proposals will work in practice. For example, we don’t yet know exactly how the identity verification process will work, although it appears that verification will be a one-off process to be conducted either directly through Companies House or a third-party provider.
Although broadly welcomed across party lines, concerns remain about whether the Bill will have its intended effect. It also remains to be seen whether Companies House will be able to adapt to its new role.
What is clear is that there will be additional burdens on company officers and a greater need for them to ensure compliance with company law generally. Smaller companies, which often have an uncertain grasp of their legal obligations, and larger companies delegating responsibilities without further scrutiny, should take careful note.