Following the Economic Crime and Corporate Transparency Act (‘the Act’) being granted Royal Assent on 26 October 2023, the Registrar of Companies now possesses increased powers to tackle economic crime. The Act applies to all corporate entities registered with Companies House and creates new requirements that company directors, people with significant control (PSCs), and anyone who files on behalf of a company are liable to meet.
New Identity Verification Requirements
An identity verification process will be implemented this year which directors, PSCs, individuals filing documents on behalf of a company and members of an LLP will all be required to comply with.
The two verification routes will be:
- Directly with Companies House; or
- Through an Authorised Corporate Service Provider (ACSP) such as solicitors, accountants, and company formation agents.
Directors (or equivalent) should not undertake any actions within their capacity as a director on behalf of the company until they have completed the verification process in order to avoid facing liability. For new directors, it will be an offence to act in that capacity if the verification requirement is not filed within 14 days of their appointment.
Individuals who fail to verify their identity with the Registrar could be subject to:
- Civil penalties;
- Criminal liability – which could potentially result in a fine of up to £5,000;
- Being prevented from submitting statutory filings;
- Having the incorporation / registration of a new company rejected;
- Having the public register show ‘unverified’ as the status of the individual in question.
‘Appropriate’ Registered Office Address
The new rules, which are going to be implemented from March 2024 onwards, will require that companies must always have an ‘appropriate address’ supplied to Companies House as their registered office.
The address must be one where documents arrive for the attention of a person acting on behalf of the company and an acknowledgment of delivery can be received. PO boxes are not permitted.
Changes to Accounts
In order to modernise the filing of company accounts, a transition to software only filing is set to take place over the next 2 to 3 years. The accounts filing options are also being revised for small and micro-entity companies, meaning they will need to file their profit and loss accounts.
Companies claiming audit exemptions will be required to provide an additional statement from their directors on the balance sheet outlining which exemption is being claimed and confirming that the company qualifies.
Registered Email Address
From March 2024, new companies will be required to provide a registered email address which will be monitored by someone acting on behalf of the company. Existing companies will also need to provide the same when their next confirmation statement is filed.
Corporate Transparency
A heightened focus on corporate responsibility and accountability in respect of economic crime is introduced by the Act; particularly the need for large organisations to prevent fraudulent activities within their operations.
Once the Secretary of State issues further guidance, the corporate offence of ‘failure to prevent fraud’ will come into effect. This offence will apply to large organisations defined by the following criteria:
- A turnover in excess of £36 million;
- Over 250 employees;
- Assets over £18 million.
When the government implements this offence, if a person associated with an organisation commits fraud intending to benefit the corporation, the potential penalty the company will face is an unlimited fine.
To prevent employees from bringing criminal liability onto employers, companies of all sizes should assess their current compliance procedures and begin to think about how to mitigate the potential risk of criminal prosecution by ensuring that they have reasonable fraud prevention procedures in place.
Next Steps
Further details concerning the above changes will be set out in secondary legislation. As we await the full timetable for implementation and the transactional measures to be introduced, companies need to start thinking about how they are going to be affected.
If you would like further information on how to prepare for the changes or are in any doubt about how the new requirements will affect your company, please get in touch with a member of our corporate and commercial team on 01244 312306 or at law@oliverandco.co.uk.
