The Economic Crime and Corporate Transparency Bill - All You Need To Know
Time is running out fast! The Economic Crime and Corporate Transparency Bill is expected to receive Royal Assent at the end of this year. Do you know how the ECCT Bill will affect your business once it becomes law?
October 2023 update!
The Bill is now in its final stages and received Royal Assent.
The ECCT Bill: all change for UK companies
Change is on the horizon for the business landscape of the United Kingdom. The Economic Crime and Corporate Tranparency Bill, published on 22 September 2022, is expected to receive Royal Assent at the end of 2023.
This Bill promises fundamental reforms to the Companies Act 2006, aiming to bolster data reliability, curb money laundering, and deter fraud.
The Government is introducing measures in the Bill, to increase the transparency of business ownership information at Companies House. These changes aim to give users a better understanding of those associated with each business, increase confidence in the integrity of the Register and thwart abuse by malicious companies.
The Bill is in three parts – Part One relates to companies (and is covered by this article). Part Two will introduce reforms related to Partnerships. Part Three covers the Register of Overseas Companies.
Proposed reforms for companies
Identity Verification. The cornerstone of this bill lies in the verification of identities. Under the proposed changes, all new and existing directors, members of limited liability partnerships, general partners of limited partnerships, persons with significant control (PSCs), relevant officers of relevant legal entities (RLEs) and those making filings at Companies House must have their identities verified. This verification process can be conducted either by Companies House directly or through authorised corporate service providers (ACSPs). Failing to do so will result in legal consequences for both the individual and the relevant company.
Accounts. The bill mandates the digital submission of all accounts to Companies House, tagged using standard labels (iXBRL) for financial data reporting. Unless exempted from audits, small companies will need to file audited annual accounts. Small companies can no longer file abridged or filleted accounts, enhancing transparency in financial reporting but changing the way such businesses have operated for many years.
Registered Office and Email Address. The bill outlines that a company’s Registered office must be an appropriate address where official documents can be delivered and acknowledged. Additionally, companies must maintain an official email address with Companies House, although this will not be publicly accessible.
Companies House Role and Powers. Companies House, rebranded as an active corporate gatekeeper, gains new powers to scrutinise, remove, or decline information. These will include more restrictions on company or business names, the possibility of objecting to a company’s Registered name if it is misleading because the name concerned is too similar to another name used anywhere else in the world. Also, while the current legislative framework allows the Registrar to accept documents even if they do not fully comply with the standards of service, the Bill empowers the Registrar to reject documents that have discrepancies with existing data at Companies House and to question the accuracy of documents. If there is reasonable doubt that a document meets the required information standards, not only the registrar will be entitled to reject it but also to formally request additional information in writing.
The current duty for companies of keeping certain internal Registers such as the Register of Directors, Register of Directors’ residential addresses, Register of secretaries, and PSC Register will be abolished and the only register to be kept will be the Register of Members. The option of keeping such Register of members on the central Register of Companies House will also no longer be available. Information regarding PSCs will have to be disclosed to Companies House and kept up to date.
Consequences of non-compliance
The Bill introduces financial penalties, new criminal offences and the expansion of Corporate Criminal Liability.
Failure to Prevent Fraud. This is a new offence which will hold organisations of all sectors accountable if they benefit from fraud and false accounting committed by their employees. Companies are therefore expected to have robust fraud prevention procedures in place, which are reasonable and proportionate to the company’s size.
Corporate Criminal Liability for Economic Crimes. Currently a corporate entity’s criminal liability for an individual’s action is based on the ‘Identification Doctrine’. This means that for a corporate entity to face criminal liability for an individual’s actions, that individual must serve as the primary decision-maker and controlling authority within the organisation, often referred to as the “directing mind and will” of the corporate entity.
The Bill proposes that, rather than relying on the Identification Doctrine, corporate criminal liability will also apply to actions committed by ‘senior managers’ as defined by the Corporate Manslaughter and Corporate Homicide Act 2007. The new regime will apply only to the specific economic crimes listed in the Bill (such as those in connection with fraud, bribery, theft, false accounting and concealing criminal property). However, given the urgency of reducing frauds in the UK, the Government has committed to introduce reform of the identification principle to all criminal offences in due course.
It is anticipated that a grace period will follow the receipt of Royal Assent and that further amendment through secondary regulations and the development of the Companies House system will also be required before the reforms can fire on all cylinders.
However, the reforms are extensive and may involve new responsibilities with which a company may not be familiar. As the Bill moves through the legislative process, company directors need to prepare for these significant changes to ensure they are ready in good time.
What you should do now
To ensure compliance, company directors should take the following steps:
Understand the Reforms: Familiarise yourself with the bill’s comprehensive reforms, including new offences, identity verification protocols, and changes in statutory Registers, accounting practices, and company naming conventions.
Get advice: Seek professional advice to gain in-depth insights into the specific implications of the reforms for your company, and ensure a tailored compliance strategy. Devant will be pleased to support you with this, and help you confidently navigate the upcoming changes.
Review and Update Internal Protocols: Conduct a thorough internal review of existing processes, ensuring they align with the new requirements and proper risks assessment. Update internal policies and procedures manuals, emphasising transparency, accountability, and adherence to the revised regulations.
Identity Verification: Prepare for identity verification procedures for directors, members, and persons with significant control. Understand the methods of verification, whether through Companies House or Authorised Corporate Service Providers (ACSPs), and ensure timely compliance.
Maintain Accurate Records: Focus on maintaining accurate and up-to-date records, including the Register of members. Private companies must now manage their member Registers, emphasising the importance of precise record-keeping.
Digitalised Accounting Practices: Embrace digital accounting tools and standards, ensuring the accurate and timely submission of financial data in compliance with the new filing obligations.
Stay Updated on Companies House Communications: Establish and maintain the appropriate Registered office and email address for official communications. Regularly monitor communications from Companies House, ensuring swift responses to official notifications.
Prepare for Enhanced Scrutiny: Understand that Companies House will adopt a more proactive role, checking, removing, or declining information. Ensure all documents are accurate and properly delivered, minimising the risk of misleading information.
As a regulated supplier of company services, Devant is perfectly placed to support your business through this transition. If you’d like to discuss how The Economic Crime and Corporate Transparency Bill reforms will affect your business in practice, and what to do about it, contact us at email@example.com or on 0118 353 6000.