The government has been consulting on corporate transparency and reform of the Companies Register for the past couple of years.
The broad aim is to enhance the role of Companies House, increase the transparency of UK corporate entities and help combat economic crime. We will examine both the original consultation which was published in May 2019 and the follow-up consultation published in December 2020.
What was the original consultation about?
The original consultation, entitled ‘Corporate transparency and register reform’, set out proposed reforms to the information which limited companies are required to disclose and the tightening up of the checks on any of this information submitted to Companies House.
Furthermore, various measures were proposed to improve the exchange of intelligence between Companies House and law enforcement bodies, with the aim of reducing money laundering and other white collar crime.
Some of the specific aims of proposed reforms included:
- increasing accuracy of information on the Companies Register, reinforced by identity verification of individuals;
- enhanced protection of personal data;
- improving compliance rates with the backing of an effective and respected investigation and enforcement regime for non-disclosure and false filing offences;
- removing technological and legal barriers to allow enhanced cross checks on corporate data with other public and private sector bodies;
- investing in technology and the skills of Companies House staff to make the register more efficient, effective and resilient; and
- broader reforms to reduce misuse of corporate entities.
What was the outcome of the original consultation?
Following the consultation exercise, the government set out a response, with proposed reforms in four primary areas:
1. Knowing who is setting up, managing and controlling corporate entities
Understanding who is actually behind the corporate veil is crucial for purposes of corporate transparency. To this end the government plan to:
- introduce compulsory identity verification for all directors and People with Significant Control (PSC) of UK registered companies;
- introduce compulsory identity verification for all individuals who file information on behalf of a company; and
- continue to allow company incorporations and filings to be made either directly at Companies House or via a company formations agent such as Rapid Formations*. Formations agents will be required to provide evidence of verification checks they have undertaken.
It is important to note that, under the proposals, when a new company director is appointed to the board, their appointment will not have legal effect or be shown on the Companies Register until their identity has been verified.
Furthermore, any PSCs who have not verified their identity will be flagged as non-verified on the public register – and this will be considered an offence.
* Rapid Formations already carries out verification checks.
2. Improving the accuracy and usability of data on the Companies Register
One of the key reforms under this heading is to introduce a statutory power for the Registrar of Companies (Companies House) to query and check information before it is placed on the public register. At the moment, Companies House is obliged to accept the registration of any company which has been validly submitted; this will no longer be the case.
Also, the Registrar’s powers to remove or amend inaccurate information from the public register will be enhanced.
Other proposals under this heading include:
- Further consultation on proposals to introduce full iXBRL tagging for the submission of accounts by companies to Companies House. iXBRL is an abbreviation of Inline eXtensible Business Reporting Language – a format used by commercial accounting software. See here for more details on iXBRL.
- Tightening up regulations on amendments to accounting reference periods (ARP). It looks like the plan is to only allow companies to shorten their ARP once in a five year period.
- Reviewing some of the broader aspects of accounts filings, including the exemptions that allow companies to submit micro or dormant company accounts.
3. Protecting personal information
Under the reforms, company directors will no longer be required to list their occupation for purposes of the public register. If their profession is already listed, Companies House will set up a process to have that information suppressed.
Other information which company directors can ask to be suppressed will include their signature, their day (but not month or year) of date of birth and their residential address (if this has been used as a registered office address).
A further potential reform regarding personal information on the public register is: allowing a company director who has changed their name following a change of gender to apply to have their previous name hidden on the public register and replaced with their new name. This proposal is still being considered by the government.
Please note: Any information suppressed as a result of the reforms will continue to be stored securely at Companies House and will be available to law enforcement.
4. Ensuring compliance, sharing intelligence, other measures to deter abuse of corporate entities
This heading deals mainly with steps to prevent corporate entities being used for purposes of economic crime.
One of the key proposals is to introduce an obligation on any entities that fall under the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 to report discrepancies between the information contained on the public register and the information they hold on their customers.
The cross-referencing of Companies House data against other data sets will also be permitted, using ‘legislative gateways’, to combat any criminal activity. Another interesting reform in this area is that Companies House will be provided with new powers to query and reject proposed company names before they are registered.
Furthermore, the Registrar’s powers to remove a company name once it has been registered will be enhanced, and the role of the Company Names Adjudicator is planned to be reviewed.
What is the new consultation about?
The government published a follow-up consultation in December 2020, in three parts, which is focusing on three detailed areas of reform:
1. Powers of Registrar
The proposals of this first sub-consultation are divided into the following sections:
Proposal to introduce a new power for the Registrar to query information
This will include a power that can be used in cases of identified “errors and anomalies” – where an identified error, inaccuracy or anomaly appears fraudulent, suspicious or might impact significantly on the “integrity of the register and the UK’s business environment.” It will also encompass a power to query company names and prevent them from being registered.
Reform of Registrar’s existing powers
This proposal primarily allows the Registrar to remove inaccurate information from the Companies Register. It includes the power to require certain checks be performed regarding rectification of registered office addresses and removal of directors’ details.
It also includes measures which would allow the Registrar to compel companies to file information electronically (e.g. via the Companies House website) and effectively to ban paper submission of forms and documents.
Rules governing company registers
These proposals are related to changing parts of the rules governing the registers kept by limited companies. One of the noteworthy proposals is the removal of the requirement for companies to keep a Register of Directors.
2. Implementing ban on corporate directors
This second sub-consultation builds on a proposal to prohibit corporate directors. A corporate director is a company director who is not an individual, but is instead a separate company.
The original proposal to ban corporate directors would mean that all company directors would need to be natural persons (i.e. human directors as opposed to other companies or legal entities).
Under the proposal contained in this new consultation, corporate directors will be prohibited unless (i) the board of the corporate director (company) only comprises natural persons and (ii) those natural persons have their identities verified.
3. Improving quality of financial information
This third sub-consultation sets out various proposals under the following themes:
- How information is submitted to Companies House: This outlines proposals to require company accounts to be delivered digitally and to introduce full tagging of accounts (as described above). It also looks at the possibility of reducing timescales involved in the filing of company accounts.
- What information should be filed at Companies House: Proposals here include requiring company directors to confirm their company’s eligibility to file certain types of accounts and the possibility of revising small company account filing options.
- What Companies House does with this information: This sets out proposals to increase checks of submitted company accounts. It also asks for views on how financial information could be better displayed on the register of companies.
What are the next steps?
The three follow-up consultations close on 3 February 2021. Once responses have been submitted, the government will review these and then issue its own response.
Subject to objections and changes, the proposals in both the original and follow-up consultations will then be transformed into legislation and implemented by Companies House.
How should companies prepare?
Although companies still have some time to prepare for any changes which may come about as a result of the consultations, there are certain practical steps which can be taken:
- Ensure your company does not rely on paper filing and is equipped to submit accounts digitally.
- Simplify corporate structures and try to ensure that all directors are natural persons as far as possible.
- Make sure that all company directors and PSCs are able to easily verify their identity (e.g. have up to date passports, etc.).
- Consider if you want any information about directors suppressed from the public register.