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.
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:
Following the consultation exercise, the government set out a response, with proposed reforms in four primary areas:
Understanding who is actually behind the corporate veil is crucial for purposes of corporate transparency. To this end the government plan to:
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.
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:
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.
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.
The government published a follow-up consultation in December 2020, in three parts, which is focusing on three detailed areas of reform:
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.
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.
This third sub-consultation sets out various proposals under the following themes:
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.
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: