Newsletters Business Crime & Financial Services 29th Oct 2019

Corporate Transparency and Register Reform

  1. In May this year the Government (BEIS together with Companies House) opened a consultation into Corporate Transparency and Register Reform, as part of the continuing drive to increase the transparency of UK corporate entities and to help combat the risk of fraud and the misuse of information. The aim is to reduce the risk of fraud and misuse of information, widening the information companies are required to disclose, increasing the checks on this information, and introducing measures to improve the exchange of intelligence between Companies House, law enforcement and HMRC. The consultation canvassed opinion about the following changes to the manner in which Companies House operates, specifically:


  • Introducing verification checks and widening the information that companies are required to disclose;
  • Introducing a power to check information; and
  • Introducing measures to improve the exchange of information between Companies House, HMRC and other public bodies.


  1. The consultation closed in August. Although the lifetime of this parliament looks (on present information) short, the Queen’s Speech did set out that “Steps will be taken to provide certainty, stability and new opportunities for the financial services and legal sectors”, indicating that the changes to Companies House are still on the policy agenda.


Identification and Verification


  1. There is a persuasive case for introducing checks to verify the identities of individuals setting up, managing or controlling corporate entities. The concern is that the current register is too open to provision of false information, to false claims that individuals are company directors, and that UK corporate entities are being deployed by international criminal elements.  The potential for abuse then undermines the reputation of, and trust in, the register. Identity checks aim to ensure that only verified individuals are filing information on the register.


  1. In particular, identity verification would allow for checks to be run throughout the lifetime of a company. Such checks would also enable companies house better to link the records of people with multiple roles across different companies. The proposals are intended to bite on all individual Directors, Persons with Significant Control (PSCs) and presenters (persons connected with the company who file information about it on the register).  If on incorporation, any of the prospective directors of a company are unable to verify their identity then Companies House will not incorporate the company.  When individuals seek appointment as a director of an existing company, the government proposes to amend the law to make the appointment conditional on them being able to verify their identity. To support these proposals, the government intends to make it an offence for a registered company to appoint a person whose identity has not been verified.


  1. In relation to Presenters, the government is particularly concerned about the perceived ease with which company-specific credentials can be shared, and that therefore, Companies House often does not know who is filing information on behalf of a company. Identity verification of Presenters is intended to combat this.  If a Presenter is unable to verify their identity, Companies House will not accept the filings and therefore they will be unable to file the information.


  1. The information provided for verification purposes would not be publicly accessible. Access would be restricted to Companies House officials, and could be extended to law enforcement agencies on a case-by-case basis.


  1. The government is also concerned about the lack of information currently required from shareholders. The information filed about the shareholders of a company is currently not sufficient to enable Companies House to show the companies owned (fully or in part) by an individual.  The government would like to improve transparency by enabling third parties to be able to build as complete a picture as possible of a person’s trading history.


  1. The government is therefore proposing that a company will be required to collect information such as the shareholder’s name, usual residential address and date of birth or, for a corporate shareholder, the corporate or firm name and the registered or principal office.


Powers to Query and Amend


  1. In response to reports of inaccurate data on the register, the government is proposing a move away from Companies House’s traditional role of accepting information and dealing with inaccuracies when notified at a later date.


  1. The consultation sets out reforms that would give Companies House greater discretion to question the information submitted to it before it is put on the register. That discretion will then be backed up by: ‘Companies House further developing functionality in its systems to identify suspicious activities’.


  1. In future, where an application to remove information is made by a third party, in respect of information filed by a company, that company should have to provide some rationale and evidence to support any objection. A change in the administrative procedure to give effect to removals would only apply to filings which do not have legal consequences.  Filings which do have legal consequences would only be removed through a court order.


  1. The government further aims to improve filing of company accounts by the implementation of minimum iXBRL tagging standards, to ensure that key financial information is easily identifiable, and intends to limit the number of times that a company can shorten its accounting reference date (which is often abused).


  1. A welcome proposal is that Companies House should collect some further basic information, which would enable third parties to obtain it more easily. To the same end, the government proposes that Companies House should collect basic information about the regulated market on which a Relevant Legal Entity is listed.


Protecting Personal Information


  1. Virtually none of the new information that the government proposes companies and individuals should provide would be available publicly on the register.  As a result of this, the non-public part of the information Companies House holds would become larger relative to the public information.  The government considers that there should be two tiers of access to non-public information:  the limited rights enjoyed by credit reference agencies and the broader access enjoyed by specified public authorities.


  1. The government concludes that the requirements on individual directors to provide certain information are broadly fit for purpose. The only concern expressed in the report is the requirement for directors to state their occupation.  In practice this entry can be left blank if a director does not have a business occupation; further some directors have raised concerns that the public availability of their business occupation puts them at risk of harm.  The government therefore believes there may no longer be a case to ask for directors’ occupations.


  1. In limited circumstances, directors can apply to have some of their personal information already held on the register suppressed from public view. The government believes there may be a case for extending these rights.  It proposes that directors should be able to apply to Companies House to have the “day” element of their date of birth suppressed on historic filings.  This proposal aims to reduce the scope for identity theft.


  1. The government is also concerned that the disclosure of names on historic records on the register may reveal a change in gender which could put people at risk of violence. The government therefore proposes a new administrative procedure which allows a director to apply to Companies House to have their previous name hidden on company filings and replaced with a new name – but which may in fact make tracing claims against fraudulent directors more rather than less difficult.


  1. The government is also proposing to extend the circumstances in which an individual can apply for the suppression of residential addresses that were previously registered addresses. This proposal follows complaints that it is not easy enough to supress a residential address, even where the person concerned is at risk of violence or intimidation.


  1. Finally, the government is concerned that the public availability of signatures on the register can facilitate fraud. The government therefore proposes that there should be an administrative procedure to allow individuals to apply to have their signature suppressed.  In these circumstances, the register would be annotated to show that a signature had been provided.


Sharing Data


  1. The Government proposes the routine cross-checking of information on the register against external data sets and powers to obtain feedback from obliged entities on any discrepancies that are identified. It also proposes adopting a risk-based approach to the sharing of intelligence with law enforcement agencies and is likely to require companies to provide details of their bank account.


  1. The changes, when they come, may include the ability of Companies House to check data against – for instance – the register of births and deaths, and that held by supervisory bodies, including the Office for Professional Body Anti-Money Laundering Supervision (OPBAS).


  1. Regulated entities (banks, accountancy and legal firms ) are likely to be required to report anomalies to Companies House. Where Companies House identifies information that points to criminal activity, the changes will ensure that information is quickly brought to the attention of the relevant organisations.  The government is therefore considering the introduction of new powers to enable the proactive sharing of information with law enforcement partners.


  1. Recognising that the location of bank accounts is usually an important factor in investigations, the government is also considering whether there should be a new filing requirement for a UK company to notify Companies House within 14 days of any non-UK bank account being opened for the company. The company would be required to give certain details about the relevant bank account: the name of the bank, the address of the branch (where applicable) and the account number. The full bank account information would not be made publicly available on the register, but these details would be available to law enforcement on request.  The accuracy of the information provided would be supported by feedback from banks.


  1. The government is also concerned to ensure that, where corporate entities are being used for illicit purposes, action can be taken to stop that misuse. Section 124A of the Insolvency Act 1986 allows the Secretary of State to petition the court for the winding up of a company or (by virtue of regulation 5 of the Limited Liability Partnerships Regulations 2001) a limited liability partnership, where it appears expedient in the public interest.  However, these powers do not extend to limited partnerships.  The government is considering whether here may be merit in providing a new process to extend that to ensure that a limited partnership no longer carries on business where it is not in the public interest to do so.  Partners would have the opportunity to defend the striking off petition and put their case as to why the partnership should not be struck off the register.


  1. In order to combat complaints that companies are using other people’s addresses (often residential addresses) as their registered office without permission, the government intends to introduce new powers to require companies to demonstrate they are entitled to use an address as their registered office.


  1. The government is also proposing a cap on the number of company directorships that an individual may hold concurrently. The government believes it unlikely that a person could reasonably be considered to be performing their duties as a company director where they are holding large numbers of directorships. An alternative proposed solution is to link multiple directorships and flag this information to law enforcement partners.


  1. The government is also keen to address complaints that Companies House ought do more to reject company names before they are registered. Issues include where repeated and/or possibly vexatious applications are made to register a company name that is similar to the name of an existing company on the register, or where the proposed name has potential to be misleading.  The government is proposing giving Companies House further powers to query and possibly reject applications to use a company name.


  1. Many of the proposals to increase transparency have been a long time coming. Making these changes will require significant funding of Companies House. Company Directors, PSCs and those who advise them should look carefully at the draft legislation when it emerges next year.


Leon Kazakos

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