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The government announced in September 2020 that there would be long over-due reforms to Companies House. Over a year and a half later, the Queen's Speech in May 2022 announced that the Bill would introduce the intended changes. (See our previous articles following those events: Companies House Reform Urgently Required and Companies House Reform on the Horizon).
The Bill is now available to view and we are pleased that on 22 September 2022 it had its first reading in the House of Commons, with the second reading scheduled for 13 October 2022. The Bill is long overdue but is undeniably a positive step towards the UK cleaning up its act and removing 'dirty' money from its economy.
As we have previously reported, the main objectives of the Bill are to prevent fraudsters, kleptocrats and terrorists from using companies to abuse the UK's open economy and to strengthen the UK's broader response to economic crime. Companies House has for too long been a passive receiver of information that has subsequently been made publically available and used throughout the UK when business and legal transactions are conducted to inform decision-making. In order to foster the Registrar's role becoming that of "gate-keeper", key provisions of the Bill include:
- The Introduction of identity verification for all new and existing registered company directors, People with Significant Control (PSCs), and those delivering documents to the Registrar;
- New powers to check, remove or decline information submitted to, or already on, the companies register;
- The expansion of powers to remove material from the Register including a new discretionary power to remove material which impacts upon the integrity of the Register;
- Improvement of financial information on the register; and
- Providing Companies House with more effective investigative and enforcement powers and introducing better cross-checking of data with other public and private sector bodies.
We welcome all of the above changes but would make the following observations:
- It is essential that sufficient resources be allocated to allow these enhanced powers to be implemented effectively. If adequate funding is not provided for these powers to be used sufficiently, there is an even greater risk that the information available to the public at Companies House will provide an undeserved appearance of 'legitimacy' now that Companies House is perceived to have greater powers to check the accuracy and validity of information.
Of particular concern for us is the information already available at Companies House relating to the companies already in existence. In 2020-21 there were a total of 4.4 million active companies registered. In our view, there ought to be a clear timeframe within which checks will be conducted on information provided for those companies and it ought to be publically known when checks for existing companies have been completed in order that trust can be placed in the information available. We note that there is a transition period for ID verification for existing directors and PSCs (the length of which is currently unknown) but it is unclear if or when checks will be made in connection with the accuracy or legitimacy of other information previously supplied to Companies House.
With this concern in mind we are pleased that one of the Registrar's objectives will be (as well as ensuring that documents delivered to the registrar are complete and contain accurate information) to "minimise the risk of records kept by the registrar creating a false or misleading impression to members of the public". We hope that this objective is taken seriously since creating a false or misleading impression is a real risk if available powers are not used to maximum effect.
2. We have previously queried whether Companies House will be asking probing questions regarding complex ownership structures sitting behind corporate shareholders. On the face of it, it does not appear that this will occur but the position is unclear. Whilst the Registrar will have the power to reject information that appears to be inconsistent with other information held or could impact the 'integrity' of the register, what this means in practice remains to be seen. It does not appear, for example, that Companies House will be asking for additional information to evidence where the power really lies in complex offshore structures. We query whether the Bill goes far enough to ensure that there is sufficient transparency in relation to who in reality owns or controls a company.
3. With regards to identity verification, the Bill sets out that there will be two routes for identity verification – direct verification via Companies House and an indirect route through an Authorised Corporate Service Provider ("ACSP"). The checks represent progress but will not be fool-proof.
The 'Companies House' route for identity verification will consist of the individual taking a photograph or scan of their face and their identity document, such as a passport or driving licence. The two will be compared using likeness-matching technology and the identity verified. Identity documents "may" also be checked against government databases. Supposedly, a person will be notified within minutes if their identity was successfully verified. It is unclear if this digital process will be able to identify false or forged documents and it is unclear if and when the documents will be checked against government databases.
ACSP checks would be conducted by intermediaries such as accountants, legal advisers and company formation agents registered with a supervisory body for anti-money laundering ("AML") purposes. The ACSP will be required to declare that they have completed all necessary identity verification checks and the Registrar can request further information about such checks if necessary. To state the obvious, this will be effective only to the extent that the ACSP performs the necessary checks honestly and adequately. We note that most 'ACSPs' would not be able to perform checks against government databases, and to our knowledge, do not generally have technology to check for forged documents.
In summary, the reforms ought to enable the Registrar to clean up the register and allow faith to be restored in the information available at Companies House. That can only happen with sufficient resource to allow for checks to be conducted diligently. Despite championing the new role of the Registrar as that of "gate keeper", in its explanatory notes to the Bill the fact that Companies House incorporation fees are among the lowest in the world and 99% of incorporation applications are processed within 24 hours is still presented as an accolade. In our view, if the government is serious about 'rooting out criminals' it may need to be less focused on cheap and immediate turn around and more focussed on adequate checks being carried out carefully. We also agree with those who suggest that the incorporation fee for a company (software applications currently costing only £10) ought to be increased if that will assist with the resourcing requirement. UK businesses are likely to benefit more from a reliable database and an economy ridded of "dirty" money than they would be hampered by a slightly higher fee for company incorporation or a slightly longer wait.