What are the new responsibilities for company secretaries under the Economic Crime and Corporate Transparency Act (ECCTA)?
A strong reputation as a legitimate and safe country to do business in is essential to building economic stability and prosperity. However, governments establishing the parameters for business activities face a balancing act: they must create the right conditions for business in terms of flexibility and agility while deterring those who seek to commit economic crime.
Governments in several countries have concluded that — partly due to rapid globalisation and digitisation — the balance has shifted too far in favour of bad actors who are taking advantage of freedoms for illegal gain. UK Government’s response is the Economic Crime and Corporate Transparency Act (ECCTA), which gained Royal Assent on 26 October 2023 and is currently being implemented.
ECCTA introduces a range of measures designed to tackle corporate crime, among which are significant reforms to Companies House. The scale of the changes shouldn’t be underestimated. Chief Executive and Registrar of Companies Louise Smyth describes it as “one of the most significant moments for Companies House in our long history.”
As a result of the ECCTA, Companies House will evolve from a largely passive recipient of information to become a “much more active gatekeeper over company creation and custodian of more reliable data”1. In turn, this will deliver greater transparency and trust for individuals and companies doing business in the UK.
This is a welcome change, but it has considerable implications for those responsible for managing Companies House filings and ensuring compliance with the broader stipulations of ECCTA.
New rigour and responsibilities around Companies House filings
The Companies House reforms introduce new responsibilities, processes and statements that will likely fall to Company Secretaries and governance teams to manage. These include, but are not limited to:
A new identity verification regime
Designed to prevent the fraudulent registration of fictitious directors, the new regime requires anyone who registers and controls companies, or who makes filings with the Registrar to verify their identity.
Verification must be undertaken using a primary photo identity document such as a passport or driving license, which will be checked with electronic likeness matching technology. This can be done directly with Companies House, or through an Authorised Corporate Service Provider (ACSP). ACSPs are organisations that provide corporate governance services to third parties. They will be required to register as verified ACSPs before they can provide verification services.
There is a 12-month window in which companies must ensure that all relevant persons — company directors and Persons with Significant Control (PSCs) — achieve ID verification. According to Companies House, the facility for all individuals to verify their identity in advance of the legal requirement will open in approximately Winter 2024-Spring 2025.
Conducting identity verification of existing directors and PSCs could be a significant burden for Company Secretaries, involving educating and supporting large numbers of people through the process. Another factor to consider is ensuring adequate data protection for directors’ personally identifiable information collected as part of the verification process.
Failure to prevent fraud
Failure to prevent fraud is a new criminal offence that changes the terms of a company’s liability should it fail to stop employees or agents acting on the company’s behalf from committing fraud, where the organisation does not have reasonable fraud prevention measures in place.
Significantly, this new offence is accompanied by changes meaning that if a “senior manager” is involved in an economic crime, “acting within the actual or apparent scope of their authority,” the company can be found liable. In determining who qualifies as a “senior manager” the ECCTA test looks beyond job titles to consider the roles and responsibilities of the employee and their level of managerial influence.
Companies will need to ensure they have identified the employees falling within the senior manager category and give them regular training on what constitutes fraudulent activity, because ignorance or lack of intent will not mitigate liability.
Confirmation of lawful purposes statement
Applications to form new companies must contain a statement that the subscribers wish to form the company for lawful purposes. Thereafter, an annual confirmation statement must be made confirming that the future intended activities of the company are lawful.
While this seems simple, directors should think about what assurances they need to be able to sign the statement. Company Secretaries should think about the process for generating that statement, and the controls that need to be in place to effect its authorised signing.
Administrative actions and technology implications
Alongside the three areas discussed briefly above, the Companies House reforms in ECCTA introduces the requirement to provide a registered email address which it will use to communicate with the company.
It also restricts the types of physical addresses companies can designate as their registered office address. It is no longer permissible to use post office boxes as an official company address and documents sent to the registered address must reasonably be expected to come to the attention of someone acting on behalf of the company. This is a bid to stamp out the fraudulent registration of companies at residential addresses whose occupiers are unaware that their home is being used in this way.
Companies that use technology partners to file with Companies House should check that their provider can accommodate elements such as the inclusion of a registered email address on filing forms and additional fields for confirmation of lawful purposes statements, for example.
This is a good opportunity for larger organisations to review corporate structures and dissolved any entities that are no longer needed, to avoid expending the time and resources needed to bring them into compliance.
ECCTA and its Companies House reforms are a large and diverse topic. UK-listed companies assessing the impact on their business can consult Diligent’s eBook ‘ECCTA and Companies House Reforms: Key Focus Areas for Company Secretaries’ to learn more about the actions needed. Or watch our on-demand webinar.
