The Economic Crime And Corporate Transparency Bill

The UK government has long been under pressure to tackle economic crime and increase corporate transparency by introducing legal reforms.

The Economic Crime and Corporate Transparency Bill has completed its second reading in the House of Lords, so 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.

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 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 with many corporate crimes, when the offence is committed by a company, every officer of that company will also be considered culpable.

Although generally welcomed, 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, are more at risk of not complying with the new rules, so familiarisation with these new rules is essential.

Identity verification

Currently, it is incredibly simple to set up a new company in the UK and there is no requirement to verify the directors’ identities.

Because Companies House aims to become fully digital, directors will have to file digitally tagged accounts, using iXBRL. Once information is tagged it can be easily searched and cross-referencing with data by HMRC.

If you are setting up a company or making filings, you will have to have a verified identity with Companies House. There will also be restrictions on the use of corporate directors and officers, to maintain a direct link to natural persons. 

Transparency in annual filings

To increase transparency in annual filings there will no longer be options for abridged or filleted accounts for micro and small companies, removing some of the privacy previously enjoyed.

Evidence has suggested that data from micro-entity filing is of little value as it does not contain sufficient information to give a true and fair view of the financial position of the company. This fact also means that micro-entity filing options are attractive to fraudsters. 

There is also complexity in the filing options, as many of you will fully appreciate, so the government will simplify the filing regime. There will be filing options for micro and small companies, but the options for abridged or “filleted” accounts will be removed.

Simplicity vs privacy

So, a win for simplicity, as the accounts to be filed will be exactly those that have been prepared for shareholders. It is also a win for companies that need credit, as under the current regime credit rating agencies can rarely gather sufficient information from Companies House to form an opinion on a small or micro-entity’s credit worthiness.

The downside for many, is the loss of privacy due to the publicly filed profit and loss accounts, which will become another price of limited liability.

Results of the reform and necessary actions

It is probably a good idea to consider the impending changes and their impact on your business sooner rather than later.

Using accounting software is a quick way to get on top of your business finances, especially if you are handling it manually or using spreadsheets.

MyRegData is a Cloud software package, built on an accounting system, with the ability to file RegData returns to the FCA, VAT returns direct to HMRC, and produce management accounts. Having all of your financial information in one place will benefit your business and reduce your accountancy fees.

Call MyRegData on 0161 413 5070 for a no obligation 15 minute online walk through of the software.